Year 2018

Results

The consolidated revenue of the Group for 2018 amounted to approximately HK$312 million (2017: HK$187 million), representing an increase of approximately 67% from that of last year. The increase in revenue was mainly attributable to the increased GFA of properties sold during the year compared with that for the same period of last year. Please refer to the section headed “Business Review” hereof for details of the Group’s property sale in 2018. During the year under review, the Group’s profit attributable to owners of the Company was approximately HK$224 million (2017: HK$49 million), representing an increase of approximately 3.6 times from last year.

Apart from the growth in the sale of properties, when compared with the year 2017, the major factors affecting the results of the Group for the year ended 31 December 2018 include the following:

  1. in July 2018, the Group completed the acquisition of 100% equity interest in 廣東粵海房地產開發有限公司 (Guangdong Yuehai Property Development Co., Ltd.@) (“GYPD”) from廣東粤港投資開發有限公司 (Guangdong Yuegang Investment Development Co., Ltd.@) and 廣東粤港投資置業有限公司 (Guangdong Yuegang Investment Property Co., Ltd.@), both of which are the Group’s fellow subsidiaries. The acquisition consideration was determined on the basis of the then market value of the assets and liabilities of GYPD (at a discount) as of the Completion Date. As the consideration of the acquisition was less than the fair value of net assets acquired, a gain on bargain purchase of approximately HK$297 million (2017: nil) was recognised in the consolidated statement of profit or loss during the year under review. Such gain on bargain purchase was a one-off gain; and

  2. land appreciation tax was accrued as a result of the sale of certain properties by the Group in 2017. In the first half of 2018, the over-accrual of the land appreciation tax in 2017 of approximately HK$77.17 million (2017: nil) had been reversed following tax clearance with the local tax authorities. It is expected that no further reversal of the land appreciation tax for the same properties will be recorded in the future

The effect of the above factors was mitigated by, among others, the following:

  1. a subsidiary of the Company had received demolition compensation income from another subsidiary of the Company for the year ended 31 December 2018. During the year under review, the first-mentioned subsidiary recognised an income tax expense, net of the related deferred tax, of approximately HK$106 million (2017: nil) accordingly. It is expected that no further demolition compensation income for the same subsidiary will be recorded in the future;

  2. as funds of the Group were used for the acquisition of GYPD and the development of the GDH City Project, interest income and gain from banks and financial assets at fair value through profit or loss and at amortised costs/available-for-sale financial assets were less than those in 2017. For the year ended 31 December 2018, the Group’s interest income and gain from banks and financial assets at fair value through profit or loss and at amortised cost/available-for-sale financial assets was approximately HK$31.41 million (2017: HK$63.91 million) in aggregate, representing a decrease of 50.9% when comparing to that in 2017. In addition, the Group borrowed external loans for business development since July 2018. For the year ended 31 December 2018, the Group recognised finance costs of approximately HK$33.13 million (2017: nil) in the statement of profit or loss; and

  3. the Group recorded a revenue of approximately HK$154 million in 2017 from the sale of certain properties which were held as staff quarters, and then recorded a revenue of approximately HK$8.52 million in 2018 from the sale of the remaining two units of staff quarters in respect of which were contracted in the previous year and were delivered during the current year.

Business Review

Material Acquisition

Reference is hereby made to the Company’s announcement and circular dated 27 April 2018 and 18 May 2018, respectively, in relation to the acquisition of GYPD, in which 100% equity interest was held by two subsidiaries of Guangdong Holdings Limited, by a wholly-owned subsidiary of the Company. GYPD holds, and takes charge of the development of, the Zhuguanglu Project (now named as the Laurel House Project) and the Baohuaxuan Project. The final equity consideration was approximately RMB1,173 million (equivalent to approximately HK$1,391 million). The said acquisition was completed on 11 July 2018. Upon the Completion Date, GYPD has become an indirect wholly-owned subsidiary of the Company and the Company, through GYPD, holds the Laurel House Project and the Baohuaxuan Project.

As the price paid by the Group to acquire GYPD was determined with reference to the then market value of the property projects held by it (but acquired at a discount), the carrying value (and future cost of sales) of the properties held by GYPD consisted of development costs and the fair value appreciation as of the Completion Date of the acquisition.

 

The GDH City Project (a marketing name used by the Group for promoting the Buxin Project)

The Group holds 100% interest in the GDH City Project, which is a multi-functional commercial complex with jewellery as the main theme, located in Luohu District, Shenzhen City, 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 project, which is in close proximity to the urban highway and subway station as well as adjoining the Weiling Park, is surrounded by several municipal parks within a radius of 1.5 km, possessing convenient transportation and superb landscape resources.

Based on the Group’s current development plan, the project will be developed in two phases, the first of which involves the Northwestern Land which will mainly comprise products such as business apartments, office premises and commercial units, and except for the underground car-parking spaces, properties built on the Northwestern Land will be intended for sale upon completion; while, among others, office buildings with a height of approximately 180 meters and 300 meters, respectively, are planned to be built on the Northern Land and the Southern Land (i.e. these two land parcels making up the second phase of the project), and a shopping mall with a GFA of over 100,000 sq. m. is planned to be built across these land parcels. Based on the current plan, the filing in respect of the completion of construction (竣工備案) of the properties on the Northern Land and the Southern Land is expected to be made in the second half of 2022 and in 2023, respectively.

In December 2018, the Group optimised the commercial layout of the Northern Land and the Southern Land, and increased the GFA of the underground commercial area on the Northern Land from 9,000 sq. m. to 21,000 sq. m. with an aggregate consideration of approximately RMB470 million (equivalent to approximately HK$535 million). The Board was of the view that it was more beneficial to the overall business plan and future development of the GDH City Project as well as the Group as a result of increasing the GFA of the underground commercial area. At the same time, as part of the overall planning of the GDH City Project, since the Southern Land, consisting mainly of a landmark towers and buildings, is not desirable for large-scale commercial use, the GFA of the underground commercial area on the Southern Land has been reduced from 21,000 sq. m. to 9,000 sq. m. Please refer to the Company’s announcement dated 21 December 2018 for relevant details.

During the year under review, the roof-sealing in respect of the properties under construction in the first phase of the GDH City Project was all completed; in respect of the second phase of the project, the demolition of all the old buildings on the Southern Land was completed, and foundation pit and tangent pile works, as well as soil and gravel excavation works had commenced on the Southern Land and the Northern Land. In relation to the property sale under the project, upon the Group’s securing a pre-sale approval from the government in December 2018, the pre-sale of the properties in the first stage of the project had commenced, with an aggregate subscribed GFA of approximately 2,857 sq. m. for the year ended 31 December 2018.

In relation to the search for potential commercial occupiers of the GDH City Project, the Group has entered into an agreement on deepening strategic partnership with the Shanghai Diamond Exchange (a national factor market), pursuant to which the two parties would be engaged in close cooperation in relation to exhibitions, bonded transactions and innovative design of diamonds, ancillary services as well as international exchanges of the industry culture, and would join hands in creating a new service platform for the affiliated members of the Shanghai Diamond Exchange based in southern China. Leveraging on the successful experience of its parent company in the commercial development of TeeMall in Guangzhou, the Group has also engaged the commercial management team of TeeMall to offer consultancy services in relation to various aspects of the GDH City Project, such as the design of its commercial component, the search for potential commercial occupiers going forward, as well as its operations management.

Moreover, in response to the demands relating to the project-based jewellery industry theme, the Group has entered into framework agreements of strategic collaboration with a number of industrial resources platforms, and has launched its planning work for the vault facility under the project. Through extensive contact and collaborative interactions with industrial resources related to the project, the Group continuously optimised its project portfolio in order to showcase the competitive strengths of the project.

In order to provide its customers with quality property management services, during the year under review, the Group established a wholly-owned property management company which was tasked with offering property management services in relation to the GDH City Project.

As at 31 December 2018, the cumulative development costs and direct expenses of the GDH City Project amounted to approximately HK$3,827 million (31 December 2017: HK$3,038 million), representing a net increase of approximately HK$789 million during the year under review. As at 31 December 2018, approximately HK$2,090 million thereof was attributable to the “Properties under development” under the current assets, while HK$1,689 million and HK$48 million thereof were attributable to the “Investment properties” and “Property, plant and equipment” under the non-current assets, respectively.

     

The Laurel House Project and the Baohuaxuan Project

In July 2018, the Group completed its acquisition of 100% equity interest in GYPD, which holds the Laurel House Project and the Baohuaxuan Project. The Laurel House Project is located in Yuexiu District, Guangzhou City, the PRC, with a GFA of approximately 119,267 sq. m. The Laurel House Project includes residential units, commercial properties and car-parking spaces, among which all the residential units and some of the car-parking spaces are for sale while the remaining properties will be for rent. The Baohuaxuan Project includes residential units and car-parking spaces, all of which are for sale.

The sale of the residential units under the Laurel House Project commenced in November 2018. Against a relatively unfavorable backdrop with policy-based regulation and control, the Group took proactive countermeasures by reviewing and optimizing the sales proposal for the project and stepping up its marketing efforts in a timely manner. For the year ended 31 December 2018, the GFA of residential units under the Laurel House Project for which contract(s) had been signed amounted to approximately 4,409 sq. m., of which the GFA of residential units which had been delivered to customers amounted to approximately 2,943 sq. m. (out of which approximately 1,139 sq. m. were sold to the original property owners of that lot at agreed prices), representing approximately 4.5% of the GFA of the residential units in aggregate. After going through preparatory works, such as preliminary planning for seeking potential commercial occupiers as well as preparation for trial operations, the commercial property under the Laurel House Project has now fully entered the stage of seeking potential commercial occupiers, and letters of intent to lease have been entered into with individual customers.

The Baohuaxuan Project had commenced sales before the completion of the acquisition by the Company. Subsequent to the Completion Date, residential units with a GFA of approximately 680 sq. m. were delivered to customers under the Baohuaxuan Project during the year ended 31 December 2018. As at 31 December 2018, the accumulated GFA of the residential units delivered under the Baohuaxuan Project represented approximately 86.3% of the GFA of the residential units.

Property project

Use

Approximate GFA
(sq. m.)

Approximate GFA contracted
(sq. m.)

Approximate GFA delivered
(sq. m.)

Interest owned by the Group

     

Current year*

Accumulated

Current year *

Accumulated

 

Laurel House

Residential

65,636 4,409 4,409 2,943 2,943 100%

Baohuaxuan

Residential

3,884 381 3,582 680 3,354 100%


* Note: From the Completion Date to 31 December 2018

 

The Ruyingju Project

The Group holds 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, all of which are for sale. For the year ended 31 December 2018, the GFA of residential units under the Ruyingju Project for which contract(s) had been signed amounted to approximately 2,739 sq. m. (2017: 140 sq. m.). As at 31 December 2018, the accumulated GFA of residential units under the Ruyingju Project for which contract(s) had been signed represented approximately 94.3% of the GFA of the residential units in aggregate. For the year ended 31 December 2018, the GFA of residential units under the Ruyingju Project which had been delivered to customers amounted to approximately 415 sq. m. (2017: 899 sq. m.); while the GFA of car-parking spaces under the Ruyingju Project which had been delivered to customers amounted to approximately 3,573 sq. m. (2017: nil). As at 31 December 2018, the accumulated GFA of residential units and car-parking spaces under the Ruyingju Project sold represented approximately 91.9% and 44.4% of the GFA of the residential units and car-parking spaces in aggregate, respectively.

Property project

Use

Approximate GFA
(sq. m.)

Approximate GFA contracted
(sq. m.)

Approximate GFA delivered
(sq. m.)

Interest owned by the Group

     

Current year

Accumulated

Current year

Accumulated

 

Ruyingju

Residential

94,617 2,739 89,267 415 86,943 80%

Ruyingju

Car-parking spaces

8,052 3,646 3,646 3,573 3,573 80%

 

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 discounted price), the carrying value (and future selling cost) of the Ruyingju properties consists of its development costs and the fair value appreciation as of the Completion Date.

Financial Review

The key financial indicators 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 are also provided for comparison.

   

Year ended 31 December

 
 

Note

2018

2017

Change

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

 

224,263

49,287

+355.0%

Return on equity, %

1

5.0%

1.1%

3.9 ppt

         
   

2018
31 December

2017
31 December

Change

Net assets, in million HK$

 

4,660

4,677

-0.4%


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 recognition of a gain on bargain purchase of approximately HK$297 million in relation to the acquisition of equity interest in GYPD. As key financial indicators, both the profit attributable to owners of the Company and the return on equity improved over that of last year. Given that the Group’s business and most of its assets are denominated in Renminbi. The profit attributable to owners of the Company and the exchange rate movements of RMB against Hong Kong dollar for the year are the primary factors affecting the change in its net assets. The two aforementioned factors in aggregate contributed to a year-on-year decrease of approximately 0.4% in the Group’s net assets.

 

Other Income, Gains, Expenses and Finance Costs

The Group’s selling and marketing expenses in 2018 amounted to approximately HK$29.51million (2017: HK$7.57 million), representing an increase of approximately 289.8% from that of last year, mainly due to the fact that each of the several property projects had entered the pre-sale and sale stages, leading to an increase in related marketing activities. The Group’s administrative expenses in 2018 amounted to approximately HK$95.69 million (2017: HK$79.73 million), representing an increase of approximately 20.0% from that of last year. This was attributable to an increase in wages and related expenditures, and to the following situations that arose during the year under review: the Group incurred transaction costs of approximately HK$5.77 million in connection with the acquisition of GYPD, sustained GYPD’s administrative expenses of approximately HK$5.18 million for the period between the Completion Date and the end of 2018, and experienced an increase in the tax and additional levy payable of approximately HK$4.78 million (2017: HK$1.91 million) due to an increase in revenue.

During the year under review, the Group recorded net foreign exchange losses of approximately HK$5.44 million (2017: net foreign exchange gains of approximately HK$2.89 million). During the year under review, the Group’s interest income and gain from banks and financial assets at fair value through profit or loss and at amortised cost/available-for-sale financial assets recorded an aggregate amount of approximately HK$31.41 million (2017: HK$63.91 million), representing a decrease of approximately 50.9% from that of last year. The decrease in interest income and gain in 2018 was mainly due to a decrease in the amount of available funds of the Group.

During the year under review, the Group secured interest-bearing loans for meeting its business development needs, and recorded finance costs of approximately HK$51.54 million (2017: nil), of which approximately HK$18.41 million had been capitalised while the remaining portion of approximately HK$33.13 million were charged to the statement of profit or loss.

 

Capital Expenditure

The Group’s capital expenditure paid in 2018 was HK$700 million (2017: HK$542 million). The capital expenditure was mainly used for the GDH City Project’s exhibition center and investment properties under development.

 

Financial Resources and Liquidity

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

As at 31 December 2018, the Group had cash and cash equivalents of approximately HK$836 million (2017: HK$603 million), representing a year-on-year increase of approximately 38.6%. The increase in the cash and cash equivalents mainly represented the property pre-sale and sale proceeds received during the year under review. As at 31 December 2018, the Group did not hold any available-for-sale financial assets (31 December 2017: approximately HK$1,161 million, representing then surplus funds held through short-term principal-guaranteed wealth management products issued by commercial banks in the PRC) . Upon maturity, they had been utilised in full for property development purposes by the end of June 2018.

Of the Group’s cash and bank balances (including pledged bank deposit, restricted bank balances and cash and cash equivalents) as at 31 December 2018, 89.2% was in RMB, 10.6% was in USD and 0.2% was in HKD. Net cash flows from operating activities for the year amounted to HK$83 million (2017: net cash flows used in operating activities of HK$608 million).

As the vast majority 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 2018, the Group borrowed loans from certain banks in the aggregate amount of approximately HK$2,512 million (31 December 2017: nil), with a gearing ratio1 of approximately 36.0% (31 December 2017: nil). With the unfavorable impact of a tightening financing market in 2018, the Group managed to control its finance costs effectively, with a weighted average effective interest rate of the Group’s bank borrowings of 5.11% per annum as at 31 December 2018. As at 31 December 2018, the available banking facilities to the Group were RMB500 million (equivalent to approximately HK$571 million). The Group will review its funding needs from time to time and consider obtaining the funds through various financing means and channels according to the future development of the GDH City Project and its other businesses in 2019, so as to ensure that adequate financial resources will be available to support its business development.

As at 31 December 2018, certain property assets amounting to HK$3,979 million and the entire shares of GYPD as well as bank deposits amounting to HK$42.28 million of the Group were pledged for the purposes of securing bank loans and performance as stipulated under certain construction contracts, respectively. Except as disclosed in note 26 to the financial statements regarding the guarantees made to certain banks in relation to the mortgages of the properties sold of approximately HK$370 million as at 31 December 2018 (2017: HK$783 million), no material contingent liabilities was recorded as at 31 December 2018.

* 1Gearing ratio = (Interest-bearing loans - cash and cash equivalents)/Net assets

 

Risks and Uncertainties

Given that the Group is engaged in the business of property development and investment in Mainland China, the 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. Currently, the property projects held by the Group are all located in first-tier cities, involving properties of different types and serving different purposes for the effective diversification of operational risks.

As property projects have a relatively prolonged development period, the Company may need to seek external funds to partially finance the development of such projects. As such, the financing channels and finance 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 2018, the Group had outstanding interest-bearing loans amounting to approximately HK$2,512 million in aggregate.

Certain investment properties of the Group were carried at fair value according to the applicable accounting standards. The fair value of such investment properties is affected by prices of the property markets in which they are located as at the end of each of the reporting periods. The fair value changes of the investment properties are recognised in the statement of profit or loss and affected the profit for the period.

As property development business has a relatively long product life cycle, the Group’s future results and cash flows will be relatively volatile. In order to reduce the volatility of its revenue and profit, the commercial properties of the Laurel House Project and some properties under development in GDH City held by the Group are for rental purpose, which would contribute a stable rental income to the Group in future.

Dividend Policy

The Group is currently still in the stage of business development and intends to prioritise the application of funds towards its existing projects and future business development. The Group takes an active approach in contemplating and delving into the possibility of seeking out opportunities for real estate development and investment projects in first-tier and second-tier cities in Mainland China (particularly in cities located in the Guangdong-Hong Kong-Macao Greater Bay Area, the Pearl River Delta and the “Core, Coastal Belt and Zone Initiative”). The Company aims to generate stable and sustainable returns for its shareholders in the long run.

The Board will review the dividend policy of the Company from time to time. In deciding whether to propose the payment of any dividend and in determining the amount thereof, the Board will take into account the Group’s operating income, operating cash flows, financial position, investment and financing needs and so on.

Relationship with Customers and Suppliers

Holding the interest of every customer in high regard, the Group provides training to its sales staff on a regular basis. The Group also provides its customers with adequate information about its products and responds to any issue and question raised by customers or potential customers regarding the products offered with the aim of building customers’ confidence in the Company’s products.

The Group’s properties in relation to the property business were largely designed or constructed by a variety of suppliers and contractors. 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 attaches great importance to anti-graft and anti-corruption measures, meets with the suppliers regularly, and conveys such information to them.

Policy and Performance on Environmental Protection

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

In furtherance of the on-going optimization of our ESG policies, the Group has been communicating with stakeholders actively, in order to receive feedback on and suggestions for the Group from stakeholders such as employees, customers, business partners and suppliers, shareholders and investors, government authorities and regulators through various channels. Also, we conduct 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 in identifying and analyzing important topics from two dimensions, namely “Significance to our Stakeholders” and “Importance to Guangdong Land’s Development”, thereby allowing the Group to envisage changes in the operating environment, and consequently achieving the goals of sustainable development and proper risk management.

The Group operates in the real estate industry 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 compliance with the relevant environmental laws and regulations, including but not limited to the requirements for environmental protection, wastewater treatment and noise control, and clearly conveys the message of the Group’s emphasis on environmental protection to the main contractors of the development projects, sparing no effort in contributing to environmental protection.

The Company is currently in the process of preparing its ESG report for the year ended 31 December 2018. The information contained in this report is based solely on the Company’s ESG policies, performance, along with information of internal management. As at the date of this report, the ESG information of the Group for the year ended 31 December 2018 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 in or before July 2019.

Human Resources

The Group had 261 (2017: 225) employees as at 31 December 2018. The total employee remuneration and provident fund contributions (excluding directors’ remuneration) in 2018 was HK$82.97 million (2017: HK$69.12 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 members. There was no share option scheme of the Company in operation during the year. The Group offers different training courses to its employees.

Change of Independent Auditors

Since the Company’s incorporation and listing on The Stock Exchange of Hong Kong Limited in 1997, Ernst & Young had always been the independent auditors of the Company. In furtherance of sound corporate governance, the Company should consider arranging for the rotation of its independent auditors at suitable intervals. Accordingly, Ernst & Young retired as the Company’s auditors with effect from the conclusion of the Company’s annual general meeting held on 7 June 2018. The Company received a confirmation letter dated 27 March 2018 from Ernst & Young confirming that there was no matter relating to its retirement that would be required to be brought to the attention of the Company’s shareholders or creditors. The Board has confirmed that there was no matter relating to the proposed change of auditors that would be required to be brought to the attention of the Company’s shareholders. The Board would like to express its heartfelt gratitude to Ernst & Young for the services rendered to the Company in previous years.

The Board resolved, with the recommendation from the Audit Committee of the Company, to propose the appointment of PricewaterhouseCoopers as the new independent auditors of the Company following the retirement of Ernst & Young. Such appointment took effect from the conclusion of the Company’s annual general meeting held on 7 June 2018, and the term of office shall expire upon the conclusion of the next annual general meeting of the Company.