Year 2017


According to the information of the National Bureau of Statistics of the PRC, the preliminary statistics of the national gross domestic product (“GDP”) for 2017 has a year-on-year increase of approximately 6.9%, and the national nominal disposable income per capita increased by 9.0% as compared to that of last year. According to the price index of newly built residential properties in 70 large to medium-sized cities in December 2017, the residential price index of Guangzhou had an increase of approximately 5.5% and that of Shenzhen had a decrease of approximately 2.9% as compared to the same month of last year. Growth in the prices of newly built commodity residential properties across the first-tier cities in Mainland China has eased off.

Results


The consolidated revenue of the Group for 2017 amounted to HK$187 million (2016: HK$1,092 million), representing a decrease of approximately 82.9% from last year. The decrease in revenue was mainly due to approximately 90.6% of the GFA of the residential units under the Ruyingju Project had been sold by the end of 2016. Also, in view of the local government’s relevant policies on property prices and the Group’s intention of not lowering the selling prices of the remaining residential units under the Ruyingju Project, the sale of the remaining residential units under the Ruyingju Project had to be postponed. During the year under review, the Group’s profit attributable to owners of the Company was HK$49.29 million (2016: HK$17.73 million), representing an increase of approximately 177.9% from last year.
 
Apart from a decrease in revenue from the Ruyingju Project as described above, the Group recorded an revenue of approximately HK$154 million in 2017 from the sale of certain properties which were held as staff quarters in previous years. In addition, from 2016 onwards and in 2017, the Group injected its RMB deposits previously held in Hong Kong into a subsidiary established in the PRC which is responsible for the development of the Buxin Project, thereby significantly reducing the net exchange differences, arising from fluctuating exchange rates between RMB and Hong Kong dollar, recognised in the consolidated statement of profit or loss in 2017. The Group recorded net exchange gains of HK$2.89 million (2016: net exchange losses of HK$32.31 million) in 2017.

Business Review


The Buxin Project
 
The Group holds a 100% interest in the Buxin Project, which is a multi-functional commercial complex with jewelry as the main theme, located in the Buxin Area, Luohu District, Shenzhen City in the PRC. The total site area of the project amounts to approximately 66,526 sq. m., and the GFA included in the calculation of the plot ratio amounts to approximately 432,051 sq. m. In addition, an underground area of 30,000 sq. m. could be developed for commercial use. The Buxin Project, which is in close proximity to the urban highway and subway station as well as adjoining Weling Park, is surrounded by several municipal parks within a radius of 1.5 km, possessing convenient transport and superb landscape resources.
 
The Northwestern Land, which is under the first phase of the development of the Buxin Project, has a GFA of approximately 166,000 sq. m., of which the total saleable GFA is approximately 116,000 sq. m. In the second quarter of 2017, the Group completed the tender and engagement of the main contractor for the Northwestern Land development as detailed in the circular of the Company dated 19 June 2017. Based on the Group’s current development plan, except for the underground car-parking spaces, properties built on the Northwestern Land will be for sale upon completion. During the year under review, construction of properties on the Northwestern Land was on track with construction of the basement and some floors have been completed. The Group has formed a sales management team and has been preparing to establish a sales center. Meanwhile, the Group continued to visit potential customers and promoted the Buxin Project vigorously, and positive feedback has been received. With regard to the Southern Land and the Northern Land which are under the second phase of the development of the Buxin Project, the Group plans to build, among others, office buildings with a height of approximately 180 meters and 300 meters, respectively, as well as a shopping mall across the Southern Land and the Northern Land.
 
As at 31 December 2017, the cumulative development costs and fees of the Buxin Project amounted to approximately HK$3,038 million (31 December 2016: HK$2,666 million), representing a net increase of approximately HK$372 million during the year under review. As at 31 December 2017, approximately HK$1,909 million and HK$1,129 million were attributable to the ”Properties under development” under the current assets and the “Investment properties” under the non-current assets, respectively.

On-site photo taken from the construction site of the Northwestern Land of the Buxin Project (taken on 6 March 2018)

An aerial view of the Buxin Project (for illustrative purpose)


The Ruyingju Project

The Group holds an 80% interest in the Ruyingju Project, which is located in Panyu District, Guangzhou City in the PRC, with a GFA of approximately 126,182 sq. m. (adjusted after survey). The Ruyingju Project includes residential units and car-parking spaces for sale. As at 31 December 2016, approximately 90.6% of the GFA of residential units under the Ruyingju Project were sold. For the year ended 31 December 2017, sales contracts of residential units under the Ruyingju Project with an aggregated GFA of approximately 140 sq. m. were signed (2016: 30,962 sq. m.), representing a decrease of approximately 99.5% from last year. As at 31 December 2017, the accumulated GFA of signed sales contract represented approximately 91.5% of the GFA of the residential units.

For the year ended 31 December 2017, the GFA of the delivered residential units of Ruyingju Project amounted to approximately 899 sq. m. (2016: 45,959 sq. m.), representing a decrease of approximately 98.0% from last year. As at 31 December 2017, the accumulated GFA of the Ruyingju Project’s residential units sold represented approximately 91.5% of the GFA of the residential units in aggregate. During the year under review, based on the residential units sold, the contracted average selling price denominated in RMB increased by approximately 30.4% over 2016.

The Group acquired the equity interest in the Ruyingju Project in April 2015. As the acquisition price paid was determined with reference to the then market value of the Ruyingju Project (but acquired at a discount), the carrying value (and future cost of sales) of the Ruyingju properties consists of its development costs and the fair value increases as of the completion date of the acquisition.

Financial Review


Key Financial Ratios

The key financial ratios mainly reflect the Group's profit attributable to the owners of the Company and the return on equity during the year under review as well as the net assets at the end of the reporting period. Figures for the previous year were provided for comparison.

 
   

Year ended 31 December

 

 

Note

2017

2016

Change

Profit attributable to owners of the Company, in HK$'000

 

49,287

17,734

+177.9%

Return on equity,%  

1

1.1%

0.4%

0.7 ppt

         
   

31 December 2017

31 December 2016

Change

Net assets, in million HK$

 

4,677

4,333

+7.9%


Note:

  1. Return on equity = Profit attributable to owners of the Company ÷ average equity attributable to owners of the Company



During the year under review, the Group’s profit attributable to owners of the Company increased year-on-year mainly because of the disposal of certain properties which were held as staff quarters in previous years and net foreign exchange gains. As a result, the two key financial ratios, profit attributable to the owners of the Company and the return on equity, both improved over that of last year. The Group’s business and most of its assets are denominated in Renminbi. In addition to the positive profit attributable to owners of the Company recorded, the appreciation of RMB against Hong Kong dollar in 2017 was the main reason for an increase in the Group’s net assets presented in Hong Kong dollar. The two aforementioned factors in aggregate contributed to a year-on-year increase of approximately 7.9% in the Group’s net assets.

Operating Income, Expenses and Finance Costs

During the year under review, the Group’s interest income from cash and bank balances and available-for-sale financial assets recorded an aggregate amount of HK$63.91 million (2016: HK$73.44 million), representing a decrease of approximately 13.0% from last year. The decrease in interest income in 2017 was mainly due to a decrease in the amount of bank deposits of the Group.

During the year under review, the Group recorded net foreign exchange gains of HK$2.89 million (2016: net exchange losses of HK$32.31 million), mainly resulting from the Group’s injection of its RMB deposits previously held in Hong Kong into a PRC subsidiary which is responsible for the development of the Buxin Project, thereby reducing the impact of exchange rate changes on the Group’s consolidated statement of profit or loss.

The Group’s selling and distribution expenses in 2017 amounted to HK$7.57 million (2016: HK$13.55 million), representing a decrease of approximately 44.1% from last year, mainly due to a drop in relevant sales activities of the Ruyingju Project. The Group’s administrative expenses in 2017 amounted to HK$74.37 million (2016: HK$72.73 million), representing an increase of approximately 2.3% from last year.

During the year under review and the last year, the Group did not have any bank and other loans and, therefore, did not record any finance costs.

Capital Expenditure

The Group’s capital expenditure paid in 2017 was HK$541 million (2016: HK$479 million). The capital expenditure was mainly used for the Buxin Project’s investment properties under development.

Financial Resources and Liquidity

As at 31 December 2017, the equity attributable to owners of the Company was HK$4.52 billion (2016: HK$4.19 billion), representing an increase of approximately 7.9% over that in 2016. Based on the number of shares in issue as at 31 December 2017, the net asset value per share at the end of the year was HK$2.64 (2016: HK$2.45) per share, representing an increase of approximately 7.8% over that in 2016.

As at 31 December 2017, the Group had cash and bank balances of HK$720 million (2016: HK$2.97 billion), representing a year-on-year decrease of approximately 75.8%. The aforementioned amount included restricted bank balances of HK$117 million (2016: HK$563 million) principally associated with amounts received from those sold but not yet delivered units under the Ruyingju Project. Other than the funds retained for daily operations, the Group purchased short-term principal-guaranteed wealth management products issued by commercial banks in the PRC classified as available-for-sale financial assets for the purpose of earning interest income and enhancing the return as compared with bank deposits, which resulted in a decrease in the Group’s cash and bank balances as at the end of 2017. As at 31 December 2017, the Group had available-for-sale financial assets of HK$1,161 million (2016: HK$447 million).

Of the Group’s cash and bank balances as at 31 December 2017, 78.0% was in RMB, 21.9% was in USD and 0.1% was in HKD. Net cash outflows used in operating activities for the year amounted to HK$1,076 million (2016: HK$278 million).

As most of the transactions from the Group’s daily operations in Mainland China are denominated in Renminbi, currency exposure from these transactions is low. During the year under review, the Group did not take the initiative to perform currency hedge for such transactions.

As at 31 December 2017, the Group did not have any outstanding bank loan. Given the construction works on the Northwestern Land under the first phase of the development of the Buxin Project was and will be in full swing in 2017 and 2018, the Group will review its funding needs according to the progress of business development from time to time so as to ensure that adequate financial resources will be available to support its business development.

As at 31 December 2017, save for a pledged bank deposit of HK$44.32 million, none of the assets of the Group was pledged to any creditors. Except as disclosed in note 26 to the financial statements regarding the guarantees made to certain banks in relation to the mortgage of the property sold of approximately HK$783 million (2016: HK$914 million) as at 31 December 2017 and undertakings made in the master sales agreement relating to the disposal of the brewery subsidiaries, there were no material contingent liabilities recorded as at 31 December 2017.

Risks and Uncertainties

Given that the Group is engaged in the business of property development and investment in Mainland China, risks and uncertainties of its business are principally associated with the 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. The property market in Mainland China is affected by a number of factors which include, among others, economic environment, property supply and demand, the PRC government’s fiscal and monetary and taxation policies and austerity measures on the real estate sector, etc. The GDP of Mainland China has maintained a year-on-year growth though the growth rate has slowed down gradually. Currently, the property projects of the Group are all located in first-tier cities, involving properties of different types and serving different purposes, so as to effectively diversify operational risks.

The Buxin Project in Shenzhen has a relatively prolonged development period, therefore the Company may need to seek external funds to partially finance its development. As such, the financing channels and financing costs will be subject to the prevailing market conditions, the level of loan interest rates and the Group’s financial position. As at 31 December 2017, the Group did not have any outstanding interest-bearing loans.

As property development business has a relatively long product life cycle, the Group’s future profit and cash flows will be relatively volatile.

Relationship with Customers and Suppliers

Holding the interest of every customer in high regard, the Group provided training to its sales staff members on a regular basis. The Group also provided its customers with adequate information about its products and responded to any issue and question raised by customers or potential customers regarding the products offered with an aim to further build up customers’ confidence in the products of the Company.

The Group’s properties in relation to the property business were largely designed or constructed by a variety of suppliers and constructors. The tender procedures for selecting the appropriate suppliers of major projects of the Group are conducted by adhering to the general principle of “openness, fairness and impartiality”, establishing a database of supplier resources and brands, and managing the suppliers by conducting performance appraisal and review. Besides, the Group attached great importance to anti-graft and anti-corruption measures, met with the suppliers regularly, and conveyed such information to them.

Policy and Performance on Environmental Protection

The Group strictly complies with the laws and regulations enacted by the Mainland China and Hong Kong Governments, including those in relation to environmental protection, social and governance. The Company’s internal management for environmental, social and governance integrates the views of various stakeholders and is supported by staff members from all levels and departments of the Company, especially for the important areas in relation to environmental, social and governance. Staff members jointly implement and execute relevant internal policies and promptly respond to the expectations of stakeholders.

In furtherance of on-going optimizing our environmental, social and governance policies, the Group has been communicating with stakeholders actively. Through surveys, group discussions and interviews with employees, customers, business partners, investors and governmental authorities, the Group identified important topics to envisage the changes in operational environment, and consequently achieving the goals of sustainable development and proper risk management.

The Group operates in the real estate business and it is very important to strictly comply with environmental laws and regulations on construction work. Any failure to observe the relevant environmental laws and regulations may result in the relevant authorities’ rejection of the applications for construction projects. The Group strictly abided by relevant environmental laws and regulations at the construction site of each project, including but not limited to environmental protection, sewage treatment and environmental noise control, as well as engaged a professional greening company to relocate the trees near the site, sparing no efforts in contributing to environmental protection. In addition to environmental protection, the Group also participated in the “希望春蕾助學活動”(Spring Thunder Hope Student Assistance Activities) and the poverty alleviation activities of Dongbei Village to shoulder the social responsibility during the year.

The Company is currently in the process of preparing its environmental, social and governance report for the year ended 31 December 2017. The information contained in this report is based solely on the Company’s environmental, social and governance policies, performance, along with information of internal management. As at the date of this report, the environmental, social and governance information of the Group for the year ended 31 December 2017 has yet to be finalised and may be subject to necessary adjustments. Such information, which may differ from the information contained in this report, is expected to be published on or before July 2018.

Human Resources

The Group had 225 (2016: 229) employees as at 31 December 2017. The total employee remuneration and provident fund contributions (excluding directors’ remuneration) in 2017 was HK$69.12 million (2016: HK$68.65 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 individual staff member. There was no share option scheme of the Company in operation during the year. The Group offers different training courses to its employees.