Year 2015

The Group’s results for the year ended 31 December 2015 were mainly derived from its business in property development and investment.

According to the information of the National Bureau of Statistics of China, the preliminary figure of the national GDP for 2015 has a year-on-year increase of 6.9%, and the disposable income per capita increased by 8.9% as compared to that of last year. This, coupled with the changes to the fiscal and monetary policies in the PRC, including the adjustment to the tax holiday for business tax on personal housing transfer as well as the continuous downward adjustment to the long-term benchmark lending rate by the People’s Bank of China, contributable to a remarkable increase in the property prices in first-tier cities of the PRC in 2015. According to the price index of newly built residential properties in 70 large to mid-sized cities in December 2015, the residential price index of Guangzhou City had an annual increase by approximately 9.1%, and that of Shenzhen City by approximately 46.8%.

The consolidated revenue of the Group for 2015 amounted to HK$858 million (2014: HK$3.42 million). Consolidated revenue for the year under review was mainly derived from the sales income generated by the Ruyingju Project. All the investment properties, ceased to be leased in the second half of 2015. Those investment properties situated in the site of the Buxin Project will form part of the development of the Buxin Project. The rest of the investment properties is considered to be disposed of gradually. During the year under review, the Group’s net profit attributable to the owners of the Company was HK$175 million (2014: HK$81.77 million), representing an increase of approximately 113.7% from the same period last year.

In 2015, the Group acquired a 100% equity interest in Triumphant Success Limited and its subsidiaries from GDH Limited, a controlling shareholder of the Company, at a consideration of approximately HK$510 million, based on the fair value of its net asset with a discount (for further details, please refer to the announcement and the circular published by the Company dated 16 March 2015 and 2 April 2015, respectively). The main asset held by Triumphant Success Limited is a 80% interest in the Ruyingju Project located in Panyu District, Guangzhou, the PRC. As the acquisition consideration was less than the fair value of the net asset acquired, a gain on bargain purchase of HK$234 million was recognised in the audited consolidated statement of profit or loss for the year ended 31 December 2015. For further details, please refer to Note 10 to this announcement. Moreover, the Group incurred transaction costs in relation to the acquisition in the amount of approximately HK$3.54 million. Apart from the aforementioned acquisition, the Company did not make any other significant investments during the year under review.

The Group recorded an aggregated amount of net exchange losses and release of exchange reserve upon settlement of inter-company balance of HK$166 million during the year under review (2014: HK$2.91 million), which is mainly attributable to the depreciation of RMB against HKD in the second half of 2015. As at 31 December 2015, almost all cash and bank balances of the Group were denominated in RMB. The RMB balance is planned to be used mainly for investing in the Buxin Project, in Shenzhen, the PRC. Therefore, from an operational perspective, the Group currently holds RMB for its future business investment in the PRC could minimise the related currency exchange risks. However, the abovementioned exchange difference is created during the currency revaluation in preparation of the Group’s consolidated financial statements that use HKD as the reporting currency.

Key Financial Ratios


 

Note

2015

2014

Change

Profit for the year

attributable to owners of the
Company, in the thousand HK$

 

174,773

81,773

+113.7%

Return on equity, %

1

4.0%

1.9%

+110.5%

Net assets, in million HK$

 

4.610

4,338

+6.3%


Note:
1. Return on equity = net profit attributable to the owners of the Company/average equity attributable to the owners of the Company

During the year under review, a gain on bargain purchase of HK$234 million was recorded, mainly due to the Company’s acquisition of the 80% interest in the Ruyingju Project located in Panyu District, Guangzhou from its controlling shareholder, resulting in the Group’s net profit attributable to the owners of the Company amounting to HK$175 million, representing an increase of approximately 113.7% as compared to the same period last year. Return on equity increased by 110.5% over the same period last year. Total net asset increased by 6.3% from 31 December 2014. All the three key financial ratios recorded year-on-year increases.

The Buxin Project


The Buxin Project, in which the Group holds a 100% interest, is an industrial and commercial complex with jewellery as the main theme. In November 2015, the urban renewal unit planning proposal related to the Buxin Project was approved for a site development area of approximately 67,903 square meters and the total gross floor area is approximately 436,100 square meters, with the plot ratio of approximately 6.4 times. An additional 30,000 square meters of underground area was granted for commercial purpose. Currently, the Group is designing properties of different usages and types in accordance with the land use approval and reply, including industrial and commercial usages, research development, business apartment and other auxiliary service facilities.

The Group is negotiating with the Municipal Government of Shenzhen for the details and amount of the land premium pursuant to the approved Buxin Project urban renewal unit proposal. Meanwhile, taking into consideration of the market positioning of the Buxin Project, preparatory works such as preliminary market research and visits from potential customers are underway, we received good responses and supports from the potential customers for the Buxin Project. As various aspects of the work in the Buxin Project make progress, the Group will update its development schedule accordingly.

As at 31 December 2015, the Buxin Project incurred preliminary costs and fees for development in the amount of approximately HK$97.28 million in aggregate (2014: HK$25.15 million), representing a net increase of HK$72.13 million in 2015.

The Ruyingju Project


The Ruyingju Project, in which the Group holds a 80% interest, has 917 residential units and 651 parking spaces for sale, with certain residential units in pre-sale since the end of May 2015. For the year ended 31 December 2015, sale contracts for 534 residential units in aggregate were entered under the Ruyingju Project, with an aggregate floor area sold of approximately 55,000 square meters, representing approximately 58.5% of the total saleable area for residential units.

The properties in the Ruyingju Project were completed in November 2015 and 382 of the residential units were delivered to the customers and revenue was recognised during the year under review. The area of the delivered units was approximately 39,000 square meters, representing approximately 41.7% of the total saleable area of the residential units.

In 2015, the Group has recognised a gain on bargain purchase of HK$234 million from the acquisition of the Ruyingju Project. Most of the gain from the Ruyingju Project was captured in such a gain on bargain purchase. Since the acquisition price paid was determined with reference to the then market value (but at a discount) of the Ruyingju Project, the carrying value the Ruyingju properties consists of its development costs and the fair value increases as of the completion date of acquisition. With satisfactory sales, the Ruyingju Project continues to see an improvement in its average selling price. It is expected that most of the remaining residential units in the Ruyingju Project will be sold in 2016 and the average selling price (in RMB) will be higher than that in 2015 because of the expected increase in the general improvement in property prices and the better quality and location of the remaining residential units. The actual number of properties that could be delivered depends on the timing and process of the sales. It is expected that the majority of the residential units to be sold will be delivered to the customers in 2016.

Operating Income, Expenses and Finance Costs


During the year under review, the Group’s bank interest income was HK$136 million (2014: HK$137 million), representing a decrease of 0.7% as compared with the same period last year. During the year under review, the imputed interest income from fair value changes of other receivables amounted to HK$36.65 million (2014: HK$38.24 million), representing a decrease of 4.2% as compared with the same period last year. Such income will no longer be incurred in 2016 from the other receivables currently held by the Group. An aggregated gain on disposal of property, plant and equipment and assets held for sale during the year under review was HK$36.45 million in total (2014: HK$73.38 million).

In 2015, the Group’s selling and distribution expenses were HK$10.14 million (2014: nil) associated with the sale of the Ruyingju residential properties. The Group’s administrative expenses in 2015 was HK$69.46 million (2014: HK$94.78 million), representing a decrease of 26.7% as compared to that in 2014. The decrease in administrative expenses was mainly attributable to the decrease in wages and related expenditures resulting from the progressive implementation of staff redundancy plan in 2014.

In respect of the completion of the transactions related to the disposal of the equity interests in nine previous subsidiaries engaged in production and sale of beer by the Group in 2013, the Group made an additional net provision of HK$18.34 million during the year under review.

During the year 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 holding the Ruyingyu Project, has obtained bank loans. As the interest of the bank loans of HK$7.73 million accrued from the date of the acquisition has been fully capitalised, the Group recorded no finance costs during the year. For the same period last year, the Group did not have any borrowing from banks, and, therefore recorded no finance costs.

Capital Expenditure


The Group’s general capital expenditure paid in 2015 was approximately HK$4.31 million (2014: HK$1.05 million), representing an increase of 310.5% than that in 2014.

Financial Resources and Liquidity


As at 31 December 2015, the equity attributable to owners of the Company was HK$4.43 billion (2014: HK$4.34 billion), representing an increase of 2.1% over that in 2014. Based on the number of ordinary shares in issue as at 31 December 2015, the net asset value per share of the Company at the end of the year was HK$2.59 (2014: HK$2.53 per share), representing an increase of 2.4% over that in 2014.

As at 31 December 2015, the Group had cash and bank balances of HK$3.68 billion (2014: HK$3.83 billion), representing a decrease of 3.9% year-on-year. The aforementioned amount included restricted bank balances of HK$470 million (2014: HK$0.19 million) principally associated with an amount received from the sales but yet delivery of the Ruyingju Project. Of the Group’s cash and bank balances as at 31 December 2015, 99.8% was in RMB, 0.1% was in HK$ and 0.1% in USD. Net cash flows generated from operating activities for the year were HK$520 million (2014: net cash flows used in operating activities of HK$240 million).

As most of the transactions from the Group’s PRC daily operations are denominated in Renminbi, currency exposure from these transactions is low. During the year under review, the Group did not perform currency hedge of the transactions. The consolidated financial statements of the Group are presented in Hong Kong dollars, and changes in exchange rate of HK$ against RMB generated exchange differences upon currency revaluation. With the development of the Buxin Project of the Group located in Shenzhen, the PRC, capital injection to the Buxin Project will be made by the Group as and when appropriate. The impact of exchange difference arising on changes in exchange rate of HK$ against RMB on the consolidated statement of profit or loss of the Group will be diminishing.

As at 31 December 2015, the Group did not have any outstanding bank loan. Given the Group’s existing cash and bank balances, the Group will have sufficient financial resources to finance its existing continuing operations in the coming year. 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 its business development.

None of the assets of the Group was pledged to any creditors. Except for the disclosure in Note 11 of this announcement regarding the guarantee made in relation to the mortgage of the sold property of approximately HK$536 million (2014: nil) and undertakings made in the master sales agreement relating to the disposal of brewery subsidiaries, there was no material contingent liability recorded as at the end of 2015.

Risks and Uncertainties


Given that the Group is engaged in property development and investment in Mainland China, risks and uncertainties of its business are principally associated with property market and property prices in Mainland China, and the Group’s revenue in the future will be directly affected by such risks and uncertainties. Property market in Mainland China is affected by a number of factors which include economic conditions, property supply and demand, fiscal and monetary policies and taxation policies of the government. The gross domestic product (GDP) of Mainland China has maintained a year-on-year growth though the growth rate has been slowed down gradually. Currently, the property projects of the Group are all located in tier-1 cities with different categories and usage, effectively diversifying operational risks.

The Buxin Project in Shenzhen has relatively prolonged development period, and the Company may seek external fund to partially finance its development. As such, the financing channels and financing costs will be subject to the prevailing market conditions and the Group’s financial position. As at 31 December 2015, the Group did not have any outstanding interest-bearing loan.

As property sector has a relatively long product development cycle, the Group’s future profit and cash flow will be highly volatile.

Policy and Performance on Environmental Protection


The Group has strictly observed rules and regulations promulgated by the government, including the regulations on environmental protection, social and governance. During the year under review, the business activities of the Group in Mainland China were engaged principally in property construction and demolition. Regarding the completed construction of the Ruyingju properties during the year under review, the Group has obtained the approval of completion and acceptance from the Environmental Protection Bureau of Panyu, Guangzhou. For the demolition works of the land lots of the Buxin Project, demolition sites have strictly observed the laws and regulations of the relevant regions in Mainland China, including but not limited to environmental protection, sewage treatment and noise control. The Group has also commissioned green experts to preserve trees and other vegetation for the purpose of environmental protection.

In furtherance of on-going fine-tuning the policies on environmental protection, social and governance, the Group has established communication with stakeholders, such as employees, customers, business partners, investors and governmental authorities, by conducting surveys, group discussions and interviews, allowing the Group to identify important topics for the Group to envisage the changes in operational environment, and consequently achieving the goals of sustainable development and proper risk management.

Human Resources


The Group had 297 (2014: 182) employees as at the end of 2015. The total employee remuneration and provident fund contributions (excluding directors’ remuneration) of the continuing operations in 2015 was HK$55.92 million (2014: HK$63.38 million). Various basic benefits were provided to the Group’s staff with an incentive policy which was designed to remunerate staff by combined references to the Group’s operating results as well as the performance of the individual staff member.