First six months of 2018

During the period under review, the Group is engaged in property development and investment. The Group mainly holds the Buxin Project (a property development project) in Shenzhen City and the Ruyingju Project (a residential property project) in Panyu District, Guangzhou City during the period under review.

According to the information of the National Bureau of Statistics of the PRC, the preliminary statistical figure of the national gross domestic product for the first half of 2018 had a year-on-year increase of approximately 6.8%, and the nominal disposable income per capita increased by approximately 8.7% as compared with that in the same period last year. According to the price index of newly built residential properties of less than 90 square meters (“sq. m.”) in 70 large to medium-sized cities in June 2018, the price index of newly built residential properties of Guangzhou City had an increase of approximately 3.6% and that of Shenzhen City had a decrease of approximately 1.4% as compared with those in June 2017.

Results


During the period under review, the consolidated revenue of the Group was approximately HK$10.42 million (six months ended 30 June 2017: HK$27.80 million), representing a decrease of approximately 62.5% from the same period last year. The decrease in revenue was mainly due to the fact that, in terms of the gross floor area (“GFA”), approximately 91.5% of the residential units under the Ruyingju Project were sold before the end of 2017. No residential unit under the Ruyingju Project was sold during the period under review. During the period under review, the Group’s profit attributable to owners of the Company was approximately HK$62.40 million (six months ended 30 June 2017: loss of approximately HK$0.25 million).

When comparing to the same period last year, the major factors that affected the results of the Group for the period under review include the following:

  1. land appreciation tax was accrued as a result of the sale of certain properties by the Group in the previous year. During the period under review, the over-accrual of the land appreciation tax in the previous year of HK$77.17 million has been reversed following tax clearance with the local tax authorities. It is expected that further reversal of the land appreciation tax for the same properties will not be repeated in the future; and

  2. the revenue and interest income and gain of the Group were less than those in the same period last year, as a result of the decrease of sales of the residential units under the Ruyingju Project (most residential units were sold before the end of 2017) and the decrease of available funds following the development of the Buxin Project, respectively.

The board of directors of the Company (the “Board”) resolved not to declare the payment of an interim dividend for the six months ended 30 June 2018 (six months ended 30 June 2017: Nil).

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 Weiling Park, is surrounded by several municipal parks within a radius of 1.5 km, possessing convenient transportation 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. Based on the Group’s current development plan, except for the underground car-parking spaces, properties built on the Northwestern Land under the first phase of development will be for sale upon completion. During the period under review, construction of properties on the Northwestern Land was on track and the main structures of the four buildings have been constructed up to 19–27 floors respectively. The design plan for the Southern Land and the Northern Land under the second phase of the development of the Buxin Project has been completed, and 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. It is expected that the second phase of the development will commence in the latter half of this year. During the period under review, the construction of exhibition center of the Buxin Project was on schedule in accordance with the plan. Meanwhile, the Group continued to visit potential customers and promoted the Buxin Project vigorously, and positive feedback has been received.

As at 30 June 2018, the cumulative development costs and fees of the Buxin Project amounted to approximately HK$3,155 million (31 December 2017: HK$3,038 million), representing a net increase of approximately HK$117 million during the period under review. As at 30 June 2018, approximately HK$1,983 million, HK$1,134 million and HK$38 million were attributable to “Properties held for sale under development” under the current assets, “Investment properties” and “Property, plant and equipment” under the non-current assets, respectively.

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. The Ruyingju Project includes residential units and car-parking spaces for sale.

For the six months ended 30 June 2018, no residential unit was sold for the Ruyingju Project (six months ended 30 June 2017: 899 sq. m.). As at 30 June 2018, the accumulated GFA of the residential units sold under Ruyingju Project represented approximately 91.5% of the GFA of the residential units in aggregate.

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  

   

Six months ended 30 June

 

 

Note

2018

2017

Change

Profit/(loss) attributable to owners of the Company, in HK$'000

 

62,404

(249)

N/A

Return on equity, %  

1

1.38%

(0.01%)

N/A

         
   

 30 June 2018

31 December 2017 

Change

Net assets, in million HK$

 

4,700

4,677

+0.5%


Note:

  1. Return on equity = Profit/(loss) attributable to owners of the Company ÷ average equity attributable to owners of the Company

During the first half of 2018, the profit attributable to owners of the Company increased from that of the same period last year. The increase was mainly as a result of the reversal of land appreciation tax accrued in the previous year. Please refer to the “Results” section of this Management Discussion and Analysis for details.

Operating Income, Expenses and Finance Costs

During the period under review, the Group’s interest income and gain from bank and financial assets at FVPL/available-for-sale financial assets recorded an aggregate amount of approximately HK$28.90 million (six months ended 30 June 2017: HK$36.40 million), representing a decrease of approximately 20.6% from the same period last year. The decrease in interest income and gain was mainly due to a decrease in the amount of available funds of the Group.

In the first half of 2018, the Group recorded selling and distribution expenses of approximately HK$7.77 million (six months ended 30 June 2017: HK$3.19 million), representing an increase of approximately 143.6% from the same period last year. The increase of the selling and distribution expenses was mainly due to the expenses related to the pre-sale of the Buxin Project in the fourth quarter this year. The Group’s administrative expenses were approximately HK$40.94 million (six months ended 30 June 2017: HK$34.89 million) in the first half of 2018, representing an increase of approximately 17.3% from the same period last year. The increase was mainly due to the professional fees incurred during the course of the acquisition of 廣東粤海房地產開發有限公司 (Guangdong Yuehai Property Development Co., Ltd.@) during the period.

During the period under review, the Group did not borrow any bank loan. There was no finance cost recorded during the period under review (six months ended 30 June 2017: Nil).

Capital Expenditure

In the first half of 2018, the Group paid general capital expenditure for the purchase of property, plant and equipment of approximately HK$40.11 million (six months ended 30 June 2017: HK$0.42 million), representing an increase of 94.5 times from the same period last year. During the period, the capital expenditure incurred was mainly for the construction of exhibition center of the Buxin Project. In addition, capital expenditure in relation to investment properties in the Buxin Project recorded an increase of approximately HK$15.04 million (six months ended 30 June 2017: HK$513 million) in the first half of 2018.

Financial Resources and Liquidity


As at 30 June 2018, the equity attributable to owners of the Company was approximately HK$4.54 billion (31 December 2017: HK$4.52 billion), representing an increase of approximately 0.4% from the end of 2017. Based on the number of shares in issue as at 30 June 2018, the net asset value per share attributable to owners of the Company at the period end was approximately HK$2.65 (31 December 2017: HK$2.64 per share), representing an increase of approximately 0.4% from the end of 2017.

As at 30 June 2018, the Group had cash and cash equivalents of approximately HK$1.65 billion (31 December 2017: HK$0.6 billion), representing an increase of approximately 175.0% from the end of last year. Increase in cash and cash equivalents was mainly because no available-for-sale financial asset was held as at the period end. As at 31 December 2017, the Group held available-for-sale financial assets of HK$1,161 million for the purpose of earning interest income and gain higher than those from bank deposits by purchasing short-term principal-guaranteed wealth management products, classified as available-for-sale financial assets, issued by commercial banks in the PRC.

Of the Group’s cash and bank balances as at 30 June 2018, approximately 91.3% was in RMB, approximately 8.4% was in USD and approximately 0.3% was in HKD. Net cash outflows used in operating activities for the first half of 2018 amounted to HK$48.03 million (six months ended 30 June 2017: HK$717 million).

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

As at 30 June 2018, the Group did not have any outstanding bank loan. Given the construction works of the Northwestern Land of the Buxin Project under the first phase of the development has been in full swing, the Group will review its funding needs from time to time and may obtain the funds through various financing channels according to the progress of its future business development, so as to ensure that adequate financial resources will be available to support its business development. As at 30 June 2018, the Group had been granted banking facilities of RMB500 million (equivalent to approximately HK$593 million).

Asset Pledged and Contingent Liabilities


As at 30 June 2018, save for a pledged bank deposit of HK$43.94 million, none of the assets of the Group was pledged to any creditors. Except for disclosures set out in note 15 to this Condensed Consolidated Interim Financial Information regarding the guarantees made in relation to the mortgages of properties disposed of approximately HK$661 million (31 December 2017: HK$783 million) as at 30 June 2018 and undertakings made in the master agreement relating to the disposal of brewery subsidiaries, the Group did not record any other material contingent liability as at 30 June 2018.

Material Acquisition


Reference is made to the Company’s announcement dated 27 April 2018 regarding the acquisition of a 100% interest in 廣東粤海房地產開發有限公司 (Guangdong Yuehai Property Development Co., Ltd.@) (the “Target Company”) by a wholly-owned subsidiary of the Company from the subsidiaries of 廣東粤海控股集團有限公司 (Guangdong Holdings Limited@). The Target Company holds and is in charge of the development of the Zhuguanglu Project and the Baohuaxuan Project. The consideration for the acquisition comprised equity consideration of RMB1,200,490,000 (equivalent to approximately HK$1,485,939,000) (subject to adjustment (if any)). Upon the completion of the share transfer of the Target Company, the Group shall procure the repayment of the outstanding loans (being loans borrowed in the ordinary course of business of the Target Company) due from the Target Company to 廣東粤海控股集團有限公司 (Guangdong Holdings Limited@) and its associates in the aggregate amount of RMB842,139,229.20 (equivalent to approximately HK$1,042,381,000) (comprising the principal amounts and the related interest accrued up to and including 31 March 2018).

In relation to the Zhuguanglu Project, the Target Company has undertaken the construction and development of certain residential and commercial properties located at 43–79 Zhuguang Road, Yuexiu District (越秀區珠光路43–79 號) in Guangzhou City, the PRC with a total site area of approximately 12,168 sq. m. The Zhuguanglu Properties have an aggregate GFA of approximately 119,267 sq. m. (comprising (a) approximately 65,636 sq. m. for residential use; (b)approximately 22,817 sq. m. for commercial use; and (c) approximately 18,464 sq. m. as car-parking spaces, with the remainder of approximately 12,350 sq. m. being public facilities). The filing in respect of the completion of construction (竣工備案) of the Zhuguanglu Project has been completed.

In relation to the Baohuaxuan Project, the Target Company has also undertaken the construction and development of certain residential properties located between Wenchang South Road (文昌南路) and Old Baohua Road (舊寶華路) in Liwan District (荔灣區) in Guangzhou City, the PRC with a total site area of approximately 1,374 sq. m. The Baohuaxuan Properties comprise 40 residential units and 20 car-parking spaces, with an aggregate GFA of approximately 5,240 sq. m. The filing in respect of the completion of construction (竣工備案) of the Baohuaxuan Project and the construction of the Baohuaxuan Properties have been completed.

Please refer to the circular of the Company dated 18 May 2018 for the details of such an acquisition and the Target Company. The completion of the acquisition took place in July 2018. Upon completion, the Target Company has become an indirect wholly-owned subsidiary of the Company; and the Company, through the Target Company, holds the Zhuguanglu Project and the Baohuaxuan Project.

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 policies, taxation policies and austerity measures on the real estate sector, etc. 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 of the Group located in Shenzhen City 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 30 June 2018, the Group did not have any outstanding interest-bearing loans.

As property development business has a relatively long product life cycle, values of certain properties stated at fair value will be affected by prices of local property markets as at the end of the reporting period, the Group’s future results and cash flows will be relatively volatile.

Policy and Performance on Environmental, Social and Governance


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 issues 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 optimising our environmental, social and governance policies, the Group has been communicating with stakeholders actively, to receive the feedback and suggestions over the Group from stakeholders such as employees, customers, business partners and suppliers, shareholders and investors, government authorities and regulators through various channels. Also, we conducted a comprehensive and all-round stakeholder engagement in various ways, such as face-to-face communication, telephone interviews, questionnaires and on-site visits with the assistance of an independent third-party professional consultant, in order to assist the Group to identify and analyse important topics from two dimensions, namely “Significance to our Stakeholders” and “Importance to Guangdong Land’s Development” to allow the Group 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 ensures that all activities at the construction site of each project are performed in strict conformity with the relevant environmental laws and regulations of the relevant regions, including but not limited to the requirements for environmental protection, wastewater treatment and noise control, as well as clearly conveys the message of the Group’s emphasis on environmental protection to the main contractors of the development projects, sparing no efforts in contributing to environmental protection.

The Company prepared and in July 2018 published its 2017 Environmental, Social and Governance Report. The report summarises the Group’s efforts and achievement in respect of corporate social responsibility, covering various aspects including corporate governance, environmental protection, caring for employees, quality management, caring for the community and other aspects during the period from 1 January 2017 to 31 December 2017.

Human Resources


As at 30 June 2018, the Group had 220 (31 December 2017: 225) employees in aggregate. Various basic benefits were provided to the Group’s staff. As to the staff incentive policy, it was determined with reference to both the Group’s operating results as well as the performance of the individual staff member. There was no share option scheme of the Company in operation during the period under review. The Group offers different training courses to its employees.

Outlook


In 2018, the PRC government has continued to regulate the property market, constantly launching new policies governing the real estate sector. It is expected that the PRC government would not relax its policies that regulate the property market whereas the continuity and steadiness of such policies would either stand firm or reinforce. Generally speaking, the PRC’s steady economic development coupled with steady property development and investment would continue to propel the industry of residential properties and commercial properties of the PRC to develop steadily.

The Company is cautiously optimistic about the outlook of the real estate industry’s development in the first-tier cities of Mainland China. Development in the Guangdong-Hong Kong-Macau Greater Bay Area is currently in full swing. Subsequent to the implementation of plans and relevant policies for the Guangdong-Hong Kong-Macau Greater Bay Area, further integration and development of the economies of the cities in the Greater Bay Area are in prospect, and their economic positions will be further enhanced. It is anticipated that the real estate industry in the area would benefit from the social and economic integration as a whole.

The Group’s Buxin Project which is currently under development and construction would likewise benefit from the strong development momentum in the Guangdong-Hong Kong-Macau Greater Bay Area. Located in Luohu District, Shenzhen City, the Buxin Project has an enormous development potential. The Group will invest appropriate resources to develop that project in order to create and release its value, and will consider arranging external financing to support the development of the project. The business apartments and office premises under the first phase of the development of the Buxin Project are expected to meet pre-sale conditions in the second half of 2018 and pre-sales would commence upon the pre-sale permit is granted.

Through the development and construction of the Buxin Project, the Group has developed a sound cooperative relationship with the local government, accumulated experience in projects under the categories of urban re-development and revitalisation of old cities, laid the foundations for relevant industry research, mastered relevant industry information, and built an operating model for project development.

The Target Company that holds the Zhuguanglu Project and the Baohuaxuan Project became a subsidiary of the Company following the completion in July 2018. The residential units under the Zhuguanglu Project are expected to commence sale in the fourth quarter of 2018. The residential units under the Baohuaxuan Project are currently available for sale. It is expected that both projects will contribute to the results and cash flows of the Group in the second half of 2018.

At present, the Group has a strong financial position with a strong controlling shareholder and enjoys ample project and financial resources. Looking ahead, the Group aspires to capitalise on opportunities and takes an active approach in contemplating and delving into first-tier and secondtier cities in Mainland China, particularly cities located in the Guangdong-Hong Kong-Macau Greater Bay Area and the Pearl River Delta, so as to seek out opportunities for real estate development and investment projects and procure the Company’s stable and healthy development in the long run.

Under the leadership of the Board, the Group is confident in the prospect of its business development and will actively promote the development of its real estate business in order to create greater returns for its shareholders as we did in the past.

@ The English name of the entity marked with an @ is a translation of its Chinese name, and is included herein for identification purposes only. In the event of any inconsistency, the Chinese name shall prevail.