Highlights:
Sun Hung Kai & Co.’s core earnings come from its credit business, which has remained relatively stable. However, overall profitability has been more volatile, largely influenced by its investment performance. While returns from investment activities had been weak over the past two years, dragging down earnings, the company returned to profitability in 2024 as total investment returns turned positive and the fund management segment continued to expand, helping to recover earlier losses.
The company has HKD 12.6 billion in loan assets, comfortably covering its HKD 11.6 billion in debt, with matching asset and liability maturities. In addition, it maintains healthy liquidity with around HKD 5 billion in cash and up to HKD 14.5 billion in financial assets, keeping leverage at manageable levels.
Its 2026 bond has a remaining tenor of just 1.2 years, and with sound credit fundamentals, the risk of default appears low. Offering a 6.3% yield, the bond provides an attractive spread and could be of interest to investors seeking yield enhancement.
Stable Revenue, Strategy Shift Restores Profitability
In 2024, Sun Hung Kai & Co. recorded revenue of HKD 3.76 billion, a modest 4% decline year over year. The company’s core income stems from its credit business, contributing 90% of total revenue. With a strong market presence in Hong Kong and mainland China—as the largest non-bank unsecured lender in Hong Kong—its revenue base remains resilient (see Chart 1).
Chart 1: Sun Hung Kai & Co. Revenue and Profit Performance
That said, profitability has been notably more volatile, primarily driven by investment performance. Sun Hung Kai’s operating model relies on stable credit earnings to fund investment activities, which inherently carry greater return uncertainty. This disconnect often results in profit fluctuations that diverge from topline trends.
During 2022–2023, the company posted significant losses due to sluggish capital markets and weakness in the China and Hong Kong property sectors. However, strategic adjustments in investment positioning and a steady expansion of its fund management platform helped reverse the trend. Net profit attributable to shareholders rebounded from a HKD 1.53 billion loss in 2022 to HKD 380 million in 2024, marking a meaningful recovery.
Resilient Credit Income, Rebounding Investment Returns, Expanding Fund Management
Breaking down the business, the group operates across credit, investment management, fund management, and other segments. Among them, the credit segment—primarily focused on unsecured personal loans—operates as a high-yield lending business with returns reaching up to 28%, making it the company’s most stable source of profit.
In 2024, a softer Hong Kong economy dampened loan demand, leading to a 3% drop in credit revenue to HKD 3.14 billion. Loans to Hong Kong customers represent roughly 83% of the portfolio. In mainland China (17% of the loan book), the firm pivoted from unsecured to secured lending, which lowered regional yields from 20.7% to 17.6%. Separately, the liquidation of a mainland subsidiary led to a one-off FX loss of HKD 50 million, further weighing on segment profitability. Altogether, credit segment profit fell 17% year over year to HKD 800 million (see Chart 2).
Chart 2: Sun Hung Kai & Co. Segment Profit Breakdown
Unlike the more stable credit segment, Sun Hung Kai’s investment management business is inherently more volatile, with performance closely tied to market conditions and investment returns. This segment plays a pivotal role in shaping overall profitability — amplifying earnings when markets perform well and weighing on results during downturns.
The company’s investment portfolio spans three main categories: public market investments (10%), alternative investments (74%), and real estate (16%). In 2024, investment returns improved across all categories, bringing the total portfolio value to HKD 14.9 billion by year-end (see Table 1). Notably, alternative investments — the largest portion of the portfolio — delivered a 9.3% return, driven primarily by hedge funds employing long/short equity and market-neutral strategies. This recovery helped lift the total investment return to 2.5%, bringing it back into positive territory after two consecutive years of losses (see Chart 3), and supported the company’s overall earnings rebound.
Table 1: Investment Management Return Rates and Segment Profit
2022 | 2023 | 2024 | |
Public Markets | -6.1% | -4.6% | 1.7% |
Alternative Investments | -9.3% | -2.5% | 2.6% |
Real Estate | -1.5% | 3.3% | 3.0% |
Total Investment Return | -7.9% | -2.0% | 2.5% |
Investment Management Segment Profit (HKD billion) | -2.4 | -1.3 | -0.5 |
Source: Company reports, iFAST Compilations | |||
Chart 3: Investment Management Segment’s Historical Total Returns
Although the investment management segment delivered a 2.5% return in 2024, this wasn't enough to cover operating costs. As a result, the segment recorded a net loss of HKD 500 million. That said, this marks a significant improvement from losses of HKD 2.4 billion and HKD 1.3 billion in the prior two years, showing that recent adjustments to the group’s investment strategy are starting to pay off.
Meanwhile, the fund management business—launched in 2021 as part of a broader strategic shift—has continued to grow steadily. Assets under management doubled from HKD 800 million to HKD 1.6 billion by 2024, supporting consistent gains in fee income and profitability (see Table 2). The segment generated HKD 20 million in profit in 2023 and HKD 50 million in 2024, demonstrating strong growth potential. Looking ahead, the continued expansion of fund management is expected to diversify the company’s revenue mix and help cushion earnings volatility from investment operations, contributing to greater financial stability overall.
Table 2: Fund Management’s Revenue and Profit Performance
(HKD million) | 2022 | 2023 | 2024 |
Fund Management Total Revenue | 30 | 40 | 60 |
Fund Management Segment Profit | -20 | 20 | 50 |
Source: Company reports, iFAST Compilations | |||
Leverage Improved, Debt Well-Matched by Loan Assets
Sun Hung Kai & Co. strengthened its balance sheet in 2024 by redeeming maturing bonds and trimming its overall loan book, reducing total debt by HKD 3.4 billion. This brought the net gearing ratio down by 8 percentage points to 31.2%, indicating a solid leverage position. As of year-end, the company held HKD 12.6 billion in loan assets—more than enough to cover its HKD 11.6 billion in debt—with a well-aligned maturity profile (see Chart 4), suggesting the credit portfolio is well-positioned to support its debt obligations.
Chart 4: Sun Hung Kai & Co. Total Loan Asset vs Total Debt
Although net impairment losses in the credit business rose from HKD 67.6 million to HKD 79.4 million (with the loss ratio in total loan increasing from 5.9% to 7.1%), the average loan yield remained strong at 28.1%—significantly higher than the average funding cost of around 7.9%—leaving a healthy interest margin.
Additionally, the company holds about HKD 5 billion in cash and up to HKD 14.5 billion in liquid financial assets across equities, bonds, funds, and derivatives. If treated as cash equivalents, these assets would place the company in a net cash position, reinforcing its strong liquidity and prudent overall leverage (see Table 3).
Table 3: Sun Hung Kai & Co.’s Credit Metrics
(HKD billion) | 2022 | 2023 | 2024 |
Cash Reserve | 5.9 | 6.7 | 5.0 |
*Financial Assets | 16.4 | 15.4 | 14.5 |
Total Debt | 15.7 | 15.0 | 11.6 |
Total Loan Asset | 14.4 | 13.3 | 12.6 |
Net Gearing Ratio | 44% | 39% | 31% |
*Financial Assets include equity securities, bonds, funds, and derivatives Source: Company reports, iFAST Compilations | |||
Bond Investment
While neither Sun Hung Kai & Co. nor its bonds carry formal credit ratings, this doesn’t necessarily reflect weak credit quality. The company’s 2026 bond, with approximately 1.2 years remaining to maturity, offers a compelling yield of 6.3% (see Table 4).
Given the short remaining tenor, the company’s healthy credit profile, and strong liquidity, we view the risk of default as relatively low. With its attractive yield spread, this bond may warrant investor attention.
Table 4: Sun Hung Kai & Co.’s Bond Information
Bond | Tenor (year) | Yield to Maturity |
1.2 | 6.3% | |
Source: Bondsupermart | ||
Related Risk
Sun Hung Kai’s earnings are heavily reliant on investment portfolio returns, making profitability sensitive to strategic execution and market conditions. If the company’s investment strategies underperform—or if a significant market downturn occurs—portfolio losses could erode asset values, exert pressure on leverage, and dampen earnings.
Additionally, a weakening macroeconomic environment in Hong Kong or mainland China could impair borrowers’ repayment capacity. This may lead to higher credit losses and delinquency rates, ultimately affecting the company’s loan performance, revenue, and net income.
Conclusion
Sun Hung Kai & Co.’s core earnings come from its credit business, which has remained relatively stable. However, overall profitability has been more volatile, largely influenced by its investment performance. While returns from investment activities had been weak over the past two years, dragging down earnings, the company returned to profitability in 2024 as total investment returns turned positive and the fund management segment continued to expand, helping to recover earlier losses.
The company has HKD 12.6 billion in loan assets, comfortably covering its HKD 11.6 billion in debt, with matching asset and liability maturities. In addition, it maintains healthy liquidity with around HKD 5 billion in cash and up to HKD 14.5 billion in financial assets, keeping leverage at manageable levels.
Its 2026 bond has a remaining tenor of just 1.2 years, and with sound credit fundamentals, the risk of default appears low. Offering a 6.3% yield, the bond provides an attractive spread and could be of interest to investors seeking yield enhancement.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
