First six months of 2015

Results and Key Operating Data


During the period under review, the Group was engaged in the business of property development and investment. Currently, the Group is holding a number of investment properties in Shenzhen, a property project in Buxin, Shenzhen and a residential property project in the Panyu District of Guangzhou City, both are under development.

During the period under review, the Group acquired a 100% of the equity interest in Triumphant Success Limited from GDH Limited, the controlling shareholder of the Company, at a discount on the fair value of the acquired net assets (details of which were set out in the announcement and circular of the Company dated 16 March 2015 and 2 April 2015, respectively) for a total consideration of approximately HK$510 million. The major asset of Triumphant Success Limited includes an 80% interest in the Ruyingju (如英居) residential property project in Panyu District of Guangzhou City, the PRC. As the acquisition consideration was less than the fair value of the net assets acquired, an accounting gain on bargain purchase of HK$234 million was recognised in the unaudited condensed consolidated statement of profit or loss for the six months ended 30 June 2015. For details, please refer to note 11 to the Condensed Consolidated Interim Financial Information.

In the first half of 2015, the Group recorded a consolidated revenue of HK$239,000 derived from rental income of investment properties (2014: HK$1.61 million), representing a decrease of 85.2% over the same period last year. The decrease in consolidated revenue was due to the Group’s strategy to gradually reduce its rental business over its investment properties. The investment properties situated on the land parcel of the Buxin Project, which forms part of the Buxin Project development, will be demolished together with other existing buildings, while the rest are intended to be disposed of. During the period under review, the Group’s unaudited net profit attributable to owners of the Company was HK$335 million (2014: HK$71.91 million), representing an increase of approximately 366% year-on-year.

The board of directors of the Company resolved not to declare the payment of an interim dividend for the six months ended 30 June 2015 (2014: Nil).

Business and Financial Review


In the first half of 2015, the Group’s interest income from bank deposits was HK$76.79 million (2014: HK$70.38 million), representing an increase of approximately 9.1% as compared with the same period last year. In the first half of 2015, the estimated interest income from fair value changes of other receivables amounted to HK$20.06 million (2014: HK$18.85 million), representing an increase of approximately 6.4% as compared with the same period last year.

During the 6 months ended 30 June 2015, the Group recorded a combined net foreign currency exchange gain of HK$49.00 million (2014: net foreign exchange loss of HK$ 36.66 million), representing a significant improvement as compared with the same period last year. The increase of net foreign currency exchange gain during the period under review was mainly due to the settlement of certain loans denominated in RMB by the Company and its subsidiary, together with a slight appreciation of the RMB against the HK dollar at the end of June 2015, which resulted in exchange gains.

During the period under review, the Group recorded selling and distribution expenses of HK$1.07 million (2014: Nil). The Group’s administrative expenses for the first half of the year was HK$36.01 million (2014: HK$ 45.70 million), representing a decrease of 21.2% as compared with the same period last year. The decrease in administrative expenses was mainly attributable to the progressive implementation of staff redundancy plan in 2014. The decrease in the number of employees in the first half of 2015 as compared with the same period last year, resulted in the decrease of wage costs and related expenditures.

During the period under review, 廣州市番禺粤海房地產有限公司 (Guangzhou Panyu Yuehai Real Estate Company Limited), a newly acquired subsidiary of the Company, has borrowed bank loans. As the interest for the bank loans of HK$3.02 million was fully capitalized, the Group recorded no finance costs. For the same period last year, the Group did not have any borrowing from banks, and, therefore recorded no finance costs.

During the first half of 2014, the Group implemented an employee quarters allocation plan as approved by the local government, and sold staff quarters to eligible employees who met certain prerequisites and criteria in accordance with procedures and approved prices stipulated by the relevant authority of the local government. The sale of staff quarters contributed a gain of approximately HK$72.06 million to the Group in the first half of 2014. During the period under review, the Group did not record any gain generated from the sale of staff quarters.

The Buxin Project


The Buxin Project is located at Buxin Area, Luohu District, Shenzhen, the PRC. The total site area is about 87,075 square meters. The Buxin Project is an industrial commercial complex with jewellery as the main theme and will be constructed in two phases. During the period under review, the Group has revised the urban renewal unit planning proposal, which had been submitted to the Shenzhen Municipal Government for review and approval in May 2015. The Group anticipates that review and approval process of the proposal will be completed in the second half of 2015.

The Group has commenced preparatory promotion works such as preliminary market research and visits the potential customers in accordance with the market positioning of the Buxin Project, and has received warm response and support from potential customers. Based on current information and recent communication with the relevant government authorities, it is estimated that infrastructure works, including demolish of the old buildings, for phase one (which takes up a majority of the area available for development) will commence in the fourth quarter of 2015. Pre-sale and rental processes are expected to kick off in 2017. The Group will update the schedule of the project from time to time as appropriate according to the progress of the Buxin Project.

The Ruyingju Project


The Ruyingju Project is located in South of Sanzhi Xiangshui Road, Dongxiang Village, Dashi Town, Panyu District, Guangzhou, the PRC. The total site area is approximately 38,771 square meters, and the total aggregate gross floor area is approximately 127,597 square meters, with approximately 917 residential units and 651 car-parking spaces available for sale. The Ruyingju Project is located in the Panyu District of Guangzhou with mature transportation network and beautiful environment. On 30 June 2015, all the main structural constructions of the Ruyingju Project had been completed. Decoration works of all the residential units are currently in progress, which is expected to be completed by the end of October 2015.

Some of the residential units of the Ruyingju Project were put up for pre-sale since May 2015. As at 30 June 2015, approximately 195 units were successfully sold during the pre-sale. The aggregate floor area of the units sold during the pre-sale was approximately 20,201 square meters, representing approximately 21.5% of the total saleable floor area of the residential units. The average pre-sale price was RMB18,215 (equivalent to approximately HK$23,047) per square meter. Response to the pre-sale was satisfactory, and it is estimated that the project will bring certain revenue and profit to the Group within the year upon delivery of the completed properties.

Capital Expenditure


The Group’s general capital expenditure, on a cash basis, for the period under review was approximately HK$1.86 million (2014: HK$0.90 million). In addition, the capital expenditures related to the Buxin Project and the Ruyingju Project (from the date of completion of the acquisition up to 30 June 2015) were approximately HK$11.9 million and HK$39.8 million, respectively.

Financial Resources and Liquidity


As at 30 June 2015, the Group’s cash and bank balances was HK$3,590 million (which included restricted bank balances of HK$265 million), almost all of which were denominated in Renminbi. As the Group intends to use Renminbi to invest in the PRC in the future, the fund available denominated in Renminbi remove the currency exchange rate risk. During the period under review, net cash outflow from operating activities was HK$39.66 million. The Group is in a sound financial position and possesses sufficient financial resources to finance its short-term business development. The Group will review its funding needs according to progress of business development from time to time, so as to ensure that adequate financial resources will be available to support business development.

As at 30 June 2015, the Group’s total bank loan balances denominated in RMB was HK$269 million, with partial properties of the Ruyingju Project as collaterals. The repayment dates of these bank loans lie in one to two years. As at 30 June 2015, the unutilised banking facilities denominated in RMB available to the Group were approximately HK$200 million. As at 30 June 2015, the Group did not record any material contingent liabilities.

Human Resources


As at 30 June 2015, the Group had a total of 238 employees (31 December 2014: 182). Reasonable remuneration packages with reference to business performance, market practices and market conditions were offered to employees of the Group. In addition, discretionary bonuses were also granted based on the performance of the Group and that of the individual employee.

Outlook


With the medium-to-high growth rate of the PRC economy, the rising living standards of its people, and the greater need for real estate properties to cope with urbanization development, the Group firmly believes that the trend will continue to provide impetus to the growth of property development in the Mainland China, including real estate development.

Apart from developing the current Buxin Project and Ruyingju Project, the Group will also consider and identify other property development and investment opportunities in the PRC, mainly in Guangdong Province and other first-tier cities in the Mainland China.

Last but not least, the Company’s Board of directors recognises the efforts made by the management and staff during the period under review. Under the leadership of the Board, the Company successfully acquired the Ruyingju Project during the period under review, which improved the quality of the Group’s assets and diversified its operational risks. The Group is confident in the prospects of its future business development, and will proactively drive the development of real estate business with the objective to create a better return for its shareholders.