First six months of 2019

During the period under review, Guangdong Land Holdings Limited (the “Company”) and its subsidiaries (together, the “Group”) was engaged in property development and investment. The Group currently holds the GDH City Project and certain investment properties in Shenzhen City, as well as the Ruyingju Project in Panyu District, the Laurel House Project in Yuexiu District and the Baohuaxuan Project in Liwan District, Guangzhou City.

According to the information of National Bureau of Statistics of the People’s Republic of China (the “PRC”), the nation’s preliminary gross domestic product for the first half of 2019 rose by approximately 6.3% from that of the same period last year while per capita nominal disposable income of national residents recorded a year-on-year growth of approximately 8.8%. According to the price indices of newly built commodity residential properties in 70 large- to medium-sized cities in June 2019, the price indices of newly built residential properties in Guangzhou City and Shenzhen City increased by approximately 10.5% and 1.3%, respectively, from that for June 2018.

Against the backdrop of complicated internal and external environments during the first half of the year, the management adhered to the general principle of prudent development and carried out the construction of the GDH City Project cautiously in accordance with the requirements of “safeguarding quality, ensuring speed and meeting schedule”. It focused on building up its strength with reference to other key peers in the real estate industry, coordinated internal and external resources, and seizing development opportunities in major cities in the Guangdong-Hong Kong-Macao Greater Bay Area (the “Greater Bay Area”) and covered by Core, Coastal Belt and Area initiative (which fosters the optimised development of the Pearl River Delta Core Area, connects Eastern Guangdong, Western Guangdong and cities within the Pearl River Delta as a coastal economic belt like a beaded bracelet, and establishes the mountainous areas of Northern Guangdong as an ecological development zone). To secure the growth of the Group’s business, it has also formulated comprehensive short-term, medium-term and long-term funding plans that tap into the capital markets in both Hong Kong and Mainland China.

Results

During the period under review, the consolidated revenue of the Group amounted to approximately HK$464 million (six months ended 30 June 2018: HK$10.42 million), representing an increase of approximately 43.5 times from the same period last year. The increase in revenue was mainly attributable to a surge in the gross floor area (“GFA”) of sold properties held for sale. During the period under review, the Group recorded a loss attributable to owners of the Company of approximately HK$33.89 million (six months ended 30 June 2018: profit of HK$62.40 million).

In addition to the aforementioned increase in the GFA of sold properties held for sale, when compared with the same period last year, the major factors affecting the results of the Group for the period under review included the followings:

  1. land appreciation tax was accrued by the Group in 2017 as a result of the sale of certain properties. In the first half of 2018, the over-accrual of land appreciation tax in 2017 of approximately HK$77.17 million had been reversed following the tax clearance with the local tax authorities. In the first half of 2019, no such reversal of land appreciation tax for the same property project was recorded;

  2. as funds of the Group were used for business development, total interest and other income from banks and financial assets at fair value through profit or loss and at amortised costs decreased by approximately HK$24.20 million from that for the same period last year. Also, since July 2018, the Group has borrowed interest-bearing loans to finance its business development. As a result, interest expenses incurred on such loans and recognised in the consolidated statement of profit or loss in the first half of 2019 were approximately HK$40.32 million (six months ended 30 June 2018: nil);

  3. the pre-sale and sale of the properties held by the Group under the first phase of the GDH City Project and the Laurel House Project, respectively, commenced in the fourth quarter of 2018. As such, certain sales and marketing activities were launched in respect of those projects, contributing to the increase in selling and marketing expenses of approximately HK$23.03 million; and

  4. the Group recorded net exchange gains of approximately HK$12.17 million (six months ended 30 June 2018: HK$0.13 million) during the first half of 2019. The increase in net exchange gains was mainly resulted from the settlement of certain loans denominated in Renminbi due to the Company from a subsidiary of the Company.

 

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 2019 (six months ended 30 June 2018: nil).

Business Review

GDH City Project

The Group holds a 100% interest in the GDH City Project, which is a multi-functional commercial complex with jewelry as the main theme, located in Luohu District, Shenzhen City in the PRC. The total site area of the project amounts to approximately 66,526 square metres (“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 highways and subway stations and adjoins Weiling Park, is surrounded by several municipal parks within a radius of 1.5 kilometres and enjoys 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 that mainly comprises business apartments, office premises and commercial units. Except for the underground car-parking spaces, properties built on the Northwestern Land are intended for sale upon completion. While, among others, office buildings that are approximately 180 metres and 300 metres respectively in height will be built on the Northern Land and the Southern Land, which make up the second phase of the project. A shopping mall with a GFA of over 100,000 sq. m. is planned to be constructed across the Northern Land and the Southern Land.

The Group accelerated the development and construction of the GDH City Project, and the structures of all buildings under the first phase of the project have been completed, while mechanical, electrical and curtain wall installation, public area decoration, utilities and road works were in progress on schedule during the period under review. As for the second phase of the project, the foundation pit support as well as earth-and-stone excavation for the Northern Land and the Southern Land have been commenced. In December 2018, a pre-sale permit for the first phase of the GDH City Project was obtained and the pre-sale commenced. During the period under review, the Group achieved great success in the product launch event of the GDH City Project, at which target clients in the industry were widely invited, thus further promoting the GDH City Project to the market, and establishing a positive brand image.

In relation to the search for potential commercial occupiers of the GDH City Project, the Group and the Shanghai Diamond Exchange (a national factor market) has entered into an agreement on deepening strategic partnership, pursuant to which both parties will engage in close co-operation in relation to, among others, exhibitions, bonded transactions, innovative design, ancillary services as well as international industrial and cultural exchanges in respect of diamond, and will join hands in creating a new service platform for the affiliated members of the Shanghai Diamond Exchange in southern China. Meanwhile, the commercial positioning of the shopping mall has been set. Influential supermarket, movie theatre and other commercial chains were engaged in discussion to boost the search for key commercial tenants. To capitalise on the successful experience of its parent company in the commercial development of Teemall in Guangzhou City, 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 coming search for potential commercial occupiers, as well as its operational management.

Moreover, in response to the demand for jewelry-themed projects, the Group has further expanded its potential clientele by enlarging its client database, entered into framework agreements on strategic collaboration with a number of industrial resources platforms, started planning a vault for the project, and commenced the design, research and coordination works for a new innovative office-based business model. Through extensive communications and collaborative interactions with industrial resources related to the project, the Group continuously optimised the portfolio of this project in order to showcase its competitive strengths.

Lot

Usage

Approximate total site area
(sq. m.)

Approximate GFA*
(sq. m.)

Approximate GFA contracted during the period under review
(sq. m.)

Interest owned by the Group

Progress

Expected completion and filing date

Northwestern Land

Business
apartments/
Commercial

16,680

116,000

4,991

100%

Structures completed, decoration and related works in progress

2020

Northern Land

Commercial/
Offices/Mall

33,802

146,551

N/A

100%

Foundation pit support as well as earth-and-stone excavation in progress

2nd half of 2022

Southern Land

Offices/Mall

16,044

199,500

N/A

100%

Foundation pit support as well as earth-and-stone excavation in progress

2023


* Note: Including (1) underground commercial GFA of 30,000 sq. m.; and (2) common area.

As at 30 June 2019, the cumulative development costs and direct expenses of the GDH City Project amounted to approximately HK$4,089 million (31 December 2018: HK$3,827 million), representing a net increase of approximately HK$262 million during the period under review.

Laurel House and Baohuaxuan Projects

In July 2018, the Group completed the acquisition of a 100% interest in 廣東粵海房地產開發有限公司 (Guangdong Yuehai Property Development Co., Ltd.@) (“GYPD”), which holds the Laurel House Project and the Baohuaxuan Project. The Laurel House Project has a GFA of approximately 119,267 sq. m. and comprises 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 are for lease. The Baohuaxuan Project comprises residential units and car-parking spaces, all of which are for sale.

After starting the proactive search for potential commercial occupiers of the commercial properties of the Laurel House Project, the Group has ushered in several leading businesses and brands with distinctive characters that perfectly fit the position and theme of the project, i.e. a “high-end education-oriented community”. As at 30 June 2019, total GFA of lease contracts signed in respect of the commercial properties of the Laurel House Project were approximately 2,910 sq. m. The Group is currently carrying out the search for commercial occupiers, trial operation, preparation and delivery of shops as planned.

Property project

Usage

Approximate GFA (sq. m.)

Approximate GFA contracted (sq. m.)

Approximate GFA delivered (sq. m.)

Interest owned by the Group

     

Period under review

Accumulated

Period under review

Accumulated

 

Laurel House

Residential

65,636 6,198 10,607 4,440 7,383 100%

Baohuaxuan

Residential

3,884 3,582 102 3,456 100%

 

The Group acquired the interests in the Laurel House and Baohuaxuan Projects in July 2018. As the consideration paid for the acquisition of these projects was determined with reference to the then market value of these projects (but acquired at a discount), the carrying values (and future costs of sales) of properties of the Laurel House Project and the Baohuaxuan Project included their development costs and fair value appreciation as of the completion date of the acquisition.

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 comprises residential units and car-parking spaces, all of which are for sale.

Property project

Usage

Approximate GFA (sq. m.)

Approximate GFA contracted (sq. m.)

Approximate GFA delivered (sq. m.)

Interest owned by the Group

     

Period under review

Accumulated

Period under review

Accumulated

 

Ruyingju

Residential

94,617 2,083 91,350 2,816 89,759 80%

Ruyingju

Car-parking spaces

8,052 224 3,870 207 3,780 80%

 

The Group acquired the interest in the Ruyingju Project in April 2015. As the consideration paid for the acquisition of the project 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 included their development costs and the fair value appreciation as of the completion date of the acquisition.

Financial Review

Key Financial Indicators

   

Six months ended 30 June

 

Note

2019

2018

Change

(Loss)/profit attributable to owners of the Company, in HK$’000

 

(33,891)

62,404

N/A

Return on equity, %

1

(0.75%)

1.38%

N/A

   

30 June 2019

31 December 2018

Change

Net assets, in million HK$

 

4,601

4,660

-1.3%


Note:

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


During the first half of 2019, the Group recorded a loss attributable to owners of the Company mainly due to the insufficient gross profit generated from the sale of properties to cover various expenses. For details, please refer to the “Results” section in this Management Discussion and Analysis.

Operating Income, Expenses and Finance Costs

During the period under review, the Group recorded total interest income and gain from banks and financial assets at fair value through profit or loss and at amortised cost of approximately HK$4.70 million (six months ended 30 June 2018: HK$28.90 million), representing a decrease of approximately 83.7% compared to that for the same period last year. The decrease in interest income and gains was mainly due to a decrease in funds available to the Group.

During the first half of 2019, the Group recorded selling and marketing expenses of approximately HK$30.79 million (six months ended 30 June 2018: HK$7.77 million), representing an increase of approximately 296.3% from that for the same period last year. The increase in selling and marketing expenses was mainly due to the commencement of certain sales and marketing activities in relation to the GDH City and Laurel House Projects. The Group’s administrative expenses for the first half of 2019 amounted to approximately HK$50.18 million (six months ended 30 June 2018: HK$40.94 million), representing an increase of approximately 22.6% from that for the same period last year, mainly due to the administrative expenses of GYPD, which was acquired in July 2018, as well as additional taxes and surcharges resulting from the increase in revenue.

During the period under review, the Group borrowed loans to support its business development and recorded finance costs from interest-bearing loans of approximately HK$65.40 million, of which approximately HK$25.08 million was capitalised while the remaining portion of approximately HK$40.32 million was charged to the statement of profit or loss. The Group did not borrow any bank loans or record any finance costs during the same period last year.

Capital Expenditure

The amount of capital expenditure paid by the Group during the first half of 2019 was approximately HK$65.10 million (six months ended 30 June 2018: HK$55.16 million), representing an increase of approximately 18.0% from that during the same period last year. The capital expenditure for the period was mainly used for the construction of the investment properties of the GDH City Project.

Financial Resources and Liquidity

As at 30 June 2019, the equity attributable to owners of the Company was approximately HK$4.47 billion (31 December 2018: HK$4.54 billion), representing a decrease of approximately 1.5% from that as at the end of 2018. Based on the number of shares in issue as at 30 June 2019, the net asset value per share attributable to owners of the Company at the period end was approximately HK$2.61 (31 December 2018: HK$2.65) per share, representing a decrease of approximately 1.5% from that as at the end of 2018.

As at 30 June 2019, the Group had total cash and cash equivalents of approximately HK$773 million (31 December 2018: HK$836 million), representing a decrease of approximately 7.5% from that as at the end of last year. The decrease in cash and cash equivalents was mainly due to the repayment of certain bank loans of the Group during the period under review.

Of the Group’s cash and bank balances (including pledged bank deposit, restricted bank balances and cash and cash equivalents) as at 30 June 2019, approximately 90.9% was in RMB, approximately 8.9% was in USD and approximately 0.2% was in HKD. Net cash flows from operating activities for the first half of 2019 amounted to approximately HK$206 million (six months ended 30 June 2018: net cash flows used in operating activities of HK$48.03 million).

As most of the transactions in the Group’s daily operations in Mainland China are denominated in Renminbi, 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 2019, the Group borrowed loans from certain banks and a fellow subsidiary of the Company in an aggregate amount of approximately HK$2,302 million (31 December 2018: HK$2,512 million) with a gearing ratio1 of approximately 33.2% (31 December 2018: 36.0%). As at 30 June 2019, the weighted average effective interest rate of the Group’s interest-bearing debts was approximately 5.12% (31 December 2018: 5.11%) per annum. As at 30 June 2019, unutilised bank and other loan facilities available to the Group amounted to RMB750 million (equivalent to approximately HK$853 million) in aggregate. The Group reviews its funding needs from time to time according to the future development of the GDH City Project and other businesses and consider obtaining funds through various financing means and channels so as to secure adequate financial resources for business development.

1 Gearing ratio = (Interest-bearing debts – Cash and cash equivalents) ÷ Net assets

Asset Pledged and Contingent Liabilities

As at 30 June 2019, the Group’s certain real estate amounting to approximately HK$3,119 million and the entire share capital of GYPD were pledged to secure certain bank loans; and bank deposits amounting to HK$42.11 million were pledged for bank guarantees as stipulated by certain construction contracts. In addition, as at 30 June 2019, the Group provided guarantees (please refer to note 16 to the interim financial information of the 2019 interim report for details) of approximately HK$515 million (31 December 2018: HK$370 million) to certain banks in relation to the mortgage loans on properties sold. Save for the above, the Group did not have any other material contingent liabilities as at 30 June 2019.

Risks and Uncertainties

As 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 accordingly. 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. Notwithstanding the rise in external uncertainties and the increasingly complicated domestic and overseas environments brought by the trade disputes between the PRC and the United States (the “US”), the overall national economy of the PRC managed to grow at a steady rate of 6.3% in the first half of the year and maintained a stable momentum. The impact of the US-China trade disputes on the PRC is still under control. Under the principle that “residential properties are for living, not speculation” and the policies of “stabilising expectation and controlling risks”, the real estate market is cooling down steadily as a whole. At present, projects held by the Group are all located in first-tier cities and comprise different property types and uses, thereby effectively helping the Group to diversify its operating risks.

As property projects have a relatively long development period, the Company may need to obtain external funding to partially finance the development of such projects. Financing channels and costs are subject to the prevailing market conditions, lending interest rates and the financial position of the Group. As at 30 June 2019, the Group had total outstanding interest-bearing loans of approximately HK$2,302 million.

According to the applicable accounting standards, certain investment properties of the Group are stated at fair value. The fair value of such investment properties is affected by the prices in the property markets in which they are located as at the end of the respective reporting period. The fair value changes of such investment properties are recognised in the statement of profit or loss and affect the profit for the period.

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

Environmental, Social and Governance Policy and Performance

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 (“ESG”), especially for important ESG issues, takes into consideration the views of various stakeholders and is supported by staff members from all levels and departments of the Company. Staff members jointly implement and execute relevant internal policies and promptly respond to the expectations of stakeholders.

To further refine its ESG policies, the Group has been actively communicating with stakeholders such as employees, customers, business partners and suppliers, shareholders and investors, government authorities and regulators through various channels in order to gather comments and suggestions from them. Coupled with the management’s expectations on development, the Group identifies and analyses important topics at two dimensions, namely “Significance to our Stakeholders” and “Importance to Guangdong Land’s Development”, by conducting proactive stakeholder communication 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, 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 business and it is very important to strictly comply with environmental laws and regulations on construction works. 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 newly constructed buildings comply with the environmental protection and energy conservation requirements set by the central and local governments. It also spares no efforts in contributing to environmental protection by actively collaborating with the main contractors of its development projects.

The Company prepared its 2018 ESG report and published it in June 2019. The report summarises the Group’s initiatives and achievements in respect of corporate social responsibility, covering various aspects including corporate governance, environmental protection, care for employees, quality management, care for the community and other aspects in 2018. To redouble its ESG efforts, the Group is currently reviewing its ESG management framework with the aim of improving its ESG performance.

Human Resources

As at 30 June 2019, the Group had 253 (31 December 2018: 261) 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.