Year 2019

Results

The consolidated revenue of the Group for 2019 amounted to approximately HK$1,837 million (2018: HK$312 million), representing an increase of approximately 487.9% from that of last year. The increase in revenue was mainly attributable to the increase in GFA of sold properties held for sale. Please refer to the section headed “Business Review” hereof for details of the Group’s property sale in 2019. During the year under review, the Group recorded a profit attributable to owners of the Company of approximately HK$341 million (2018: HK$224 million), representing an increase of approximately 52.1% from last year.

Apart from the growth in the sale of properties, when compared with the year 2018, the major factors affecting the results of the Group for the year ended 31 December 2019 include the following:

  1. the commercial properties on the Northern Land of the Group’s GDH City Project intended for lease was stated at cost at the end of 2018. During the year under review, such commercial properties were carried at fair value for the first time and recorded a net gain on fair value appreciation of approximately HK$454 million. The fair value gain was recognised in the statement of profit or loss for the year;

  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$20.25 million from that for the same period last year. Since July 2018, the Group has continued to borrow interest-bearing loans to finance its business development which mainly render the finance costs recognised in the consolidated statement of profit or loss in 2019 were approximately HK$76.28 million (2018: HK$33.13 million), representing an increase of approximately HK$43.15 million from the same period last year; and

  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 commenced in the fourth quarter of 2018, respectively. As such, certain sales and marketing activities were launched in respect of those projects, mainly contributing to the increase in selling and marketing expenses of approximately HK$56.53 million.

 

In addition, the Group’s results in 2018 include the following three one-off items that were not available in 2019:

  1. in July 2018, the Group completed the acquisition of 100% equity interest in 廣東粤海房地產開發有限公司 (Guangdong Yuehai Property Development Co., Ltd.) (“GYPD”) from its 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 of the said transactions. As the acquisition consideration was less than the fair value of net assets acquired, a gain on bargain purchase of approximately HK$297 million was recognised in the consolidated statement of profit or loss;

  2. land appreciation tax was accrued by the Group in 2017 as a result of the sale of certain properties. For the year ended 31 December 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; and

  3. in 2018, a subsidiary of the Company had received demolition compensation income from another subsidiary of the Company. As a result, the first-mentioned subsidiary recognised a net income tax expense, net of the related deferred tax, of approximately HK$106 million accordingly.

Business Review

Material Acquisition – Successful Bidding for the Land Use Rights of a Land Parcel in Jiangmen City

On 29 September 2019, the Group has succeeded in the bid for the land use rights of a state-owned construction land located in Pengjiang District, Jiangmen City, the PRC through the public Listing-for-Sale Process. The cash consideration for the bid of the land use rights amounted to approximately RMB919 million (equivalent to approximately HK$1,019 million). The land parcel has a site area of approximately 59,705 sq. m. and a maximum total GFA included in the calculation of the plot ratio of approximately 164,216 sq. m., which is expected to be used for residential and commercial purposes. The proposed types of properties including residential units, commercial units, and car-parking spaces, will all be for sale.

Jiangmen City is positioned as the western gateway of the Greater Bay Area, with its value remaining at a bargaining level. Subsequent to improvements in the transportation infrastructure across the eastern and western areas, the future development of such area is expected to prosper. The project is situated in a region with high planning position and enjoys a strong market prospects, as well as convenient location as a bonus. Possessing rare landscape resources and sound living amenities, the project embraces the conditions in becoming a regional benchmark project, and is an excellent project subject of the Group as a stepping stone into the Jiangmen market. Adjacent to the prime lot in Jiangmen City, the land price of the project enjoys a cost advantage. Riding on the brief adjustment period of the Jiangmen land market, it was a good opportunity for the Group to acquire the aforesaid land parcel. The project will have a positive impact on the sustainable development of the Group in the future, and is also in the interests of the Group and the shareholders of the Company as a whole.

The Group is actively considering and studying its business development in the Greater Bay Area and first-tier and second-tier cities in Mainland China. The acquisition of the aforesaid land parcel is in line with the core business and development direction of the Group. The Group has established a wholly-owned subsidiary for the development of the Chenyuan Road Project and will provide appropriate resources to speed up the development of such land parcel.

The 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 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. Based on the current plan, the filing in respect of the completion of construction 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.

During the year under review, the construction works in respect of the properties under construction in the first phase of the GDH City Project entered the final stage and completed the preparation for subsequent inspection and acceptance procedures; in respect of the second phase of the project, foundation pit support as well as earth-and-stone excavation works were completed and completion inspection was passed on the Northern Land, while the structural works such as foundation pit support, anchor cable and internal support works were completed and piling works were all completed on the Southern Land. The construction permits in relation to the main construction under the Northern Land and the Southern Land development were obtained in December 2019 and January 2020, respectively. The second phase of development is going to commence in full swing. In relation to the property sale under the project, the pre-sale of the properties in the first stage of the project had commenced in December 2018, with an aggregate GFA for which contracts had been signed of approximately 15,660 sq. m. for the year ended 31 December 2019.

In relation to the search for potential commercial occupiers of the GDH City Project, the Group, Luohu Government of Shenzhen and the Shanghai Diamond Exchange (“SDE”) have reached an agreement to co-establish an extended service platform of SDE and planned to promote the innovative business of SDE in the GDH City based on such platform. The Luohu Government will actively participate in the establishment of the platform and provide corresponding policy support. 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 provide services for the GDH City Project such as the design of its commercial component, positioning, planning and the search for potential commercial occupiers. The Group has also entered into letters of intent to lease with some leading commercial brands, with an aim to develop a competitive and differentiated portfolio.

Moreover, in response to the demand for jewelry-themed projects and the need for creating differentiated competitive advantages, the Group has identified the brand partner and the consultant for the design, construction and operation of a vault facility. The Group also entered into framework agreements on strategic collaboration with a number of industrial resources platforms in relation to the intention to lease and the search for potential commercial occupiers for the GDH City Project making use of the resources of these platforms. Through extensive communications with industries 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, the Group established a wholly-owned company, 粤海悅生活物業管理有限公司 (Yuehai Yueshenghuo Property Management Co., Ltd.) (“Property Management Company”), which was tasked with offering property management services in relation to the GDH City Project (including the project sale and exhibition center) and certain properties of the Group. The Property Management Company has been involved in the takeover and acceptance works for the first phase of the GDH City Project and completed the preliminary preparation for the information system for property management, constantly enhancing its property management level with an aim of becoming a benchmark company in the industry.

Properties on the Northwestern Land of the GDH City Project, photo taken in January 2020

On-site photo of the Exhibition Centre of the GDH City Project

Land lot

Usage

Approximate total site area
(sq. m.)

Approximate GFA*
(sq. m.)

Approximate GFA contracted in 2019
(sq. m.)

Progress

Expected completion and filing date

Northwestern Land

Business apartments/ Commercial

16,680

116,000

15,660

Structures completed, and construction works entered the final stage

2020

Northern Land

Commercial/Offices/ Mall

33,802

146,551

N/A

Foundation pit support as well as earth-and-stone excavation completed

2nd half of 2022

Southern Land

Offices/Mall

16,044

199,500

N/A

Foundation pit support as well as earth-and-stone excavation completed

2023


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

As at 31 December 2019, the cumulative development costs and direct expenses of the GDH City Project amounted to approximately HK$4,490 million (31 December 2018: HK$3,827 million), representing a net increase of approximately HK$663 million during the year under review. As at 31 December 2019, approximately HK$2,577 million thereof recognised in the “Properties under development” under current assets, while HK$1,865 million and HK$48 million thereof were recognised in the “Investment properties” and “Property, plant and equipment” under non-current assets, respectively.

The Laurel House Project and the Baohuaxuan Project

In July 2018, the Group completed the acquisition of a 100% 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 are for lease. 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 proactively reviewing and optimising the sales proposal for the project and stepping up its marketing efforts in a timely manner. For the year ended 31 December 2019, the GFA of residential units which had been delivered to customers amounted to approximately 19,775 sq. m. (out of which approximately 841 sq. m. were sold to the original property owners of that lot at agreed prices), representing approximately 30.1% 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 properties under the Laurel House Project has fully entered the stage of seeking potential commercial occupiers, where the occupancy rate was approximately 80% as at the end of 2019.

Property sale under the Baohuaxuan Project had commenced prior to completion of the Company’s acquisition thereof. Since the completion date of such acquisition, the GFA of residential units under the Baohuaxuan Project which had been delivered to customers amounted to approximately 204 sq. m. in aggregate for the year ended 31 December 2019. As at 31 December 2019, the accumulated GFA of residential units under the Baohuaxuan Project delivered represented approximately 91.6% of the GFA of the residential units in aggregate.

Property project

Usage

Approximate GFA
(sq. m.)

Approximate GFA contracted
(sq. m.)

Approximate GFA delivered
(sq. m.)

     

2019

Accumulated

2019

Accumulated

Laurel House

Residential

65,636 22,513 26,922 19,775 22,718

Baohuaxuan

Residential

3,884 102 3,684 204 3,558

 

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.

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

For the year ended 31 December 2019, the GFA of residential units under the Ruyingju Project which had been delivered to customers amounted to approximately 5,156 sq. m. (2018: 415 sq. m.), representing an increase of approximately 11.4 times from that of last year. As at 31 December 2019, the accumulated GFA of the residential units and car-parking spaces under the Ruyingju Project delivered represented approximately 97.3% and 47.7% of the GFA of the residential units and car-parking spaces in aggregate, respectively.

Property project

Usage

Approximate GFA
(sq. m.)

Approximate GFA contracted
(sq. m.)

Approximate GFA delivered
(sq. m.)

     

2019

Accumulated

2019

Accumulated

Ruyingju

Residential

94,617 4,586 93,853 5,156 92,099

Ruyingju

Car-parking spaces

8,052 212 3,858 268 3,841

 

The Group acquired the equity 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.

The Chenyuan Road Project

In September 2019, the Group acquired a 100% interest of the land use right of the Chenyuan Road Project. The land parcel has a site area of approximately 59,705 sq. m. and a maximum total GFA included in the calculation of the plot ratio of approximately 164,216 sq. m. The proposed types of properties, including residential units, commercial units, and car parking spaces, will all be for sale.

For the year ended 31 December 2019, the land transfer for the Jiangmen project has been completed, while geological exploration works, project development and construction application, positioning, planning and design and preliminary preparation for site construction for the project are in progress. The project is expected to start construction in the second quarter of 2020 and will be developed by phases. It is expected that the properties for the first phase of development will be ready for pre-sale by 2021.

Financial Review

Key Financial Indicators

   

Year ended 31 December

 

Note

2019

2018

Change

Profit attributable to owners of the Company (HK$’000)

 

341,063

224,263

+52.1%

Return on equity (%)

1

7.3%

5.0%

+2.3ppt

   

31 December 2019

31 December
2018

Change

Net assets (HK$ million)

 

4,870

4,660

+4.5%


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, as key financial indicators, both the profit attributable to owners of the Company and the return on equity improved over that of last year. The improvement in these financial indicators was mainly attributed to the increase in the revenue from the sale of properties and the fair value appreciation of investment properties. For the analysis of the profit attributable to owners of the Company for the year, please refer to the section headed “Results” in this Management Discussion and Analysis.

Other Income, Gains, Expenses and Finance Costs

The Group’s selling and marketing expenses in 2019 amounted to approximately HK$86.04 million (2018: HK$29.51 million), representing an increase of approximately 191.6% from that of last year, mainly due to the fact that each of the first phase of the development of the GDH City Project and the Laurel House Project had entered the pre-sale and sale stages, leading to an increase in related marketing activities. The Group’s administrative expenses in 2019 amounted to approximately HK$118 million (2018: HK$95.69 million), representing an increase of approximately 23.3% from that of last year. During the year under review, the increase in administrative expenses was mainly due to an increase in wages and related expenditures and an increase in the business taxes and surcharges payable of approximately HK$18.38 million (2018: HK$4.78 million) due to an increase in revenue.

The Group recorded net exchange gains of approximately HK$10.70 million (2018: net exchange losses of approximately HK$5.44 million) during the year under review. The net exchange gains for the year were mainly resulted from the settlement of certain loans denominated in Renminbi due to the Company from a subsidiary of the Company.

The Group secured interest-bearing loans for meeting its business development needs, which led to an increase in finance costs. During the year under review, the Group recorded finance costs of approximately HK$130.34 million (2018: HK$51.54 million), of which approximately HK$54.06 million had been capitalised while the remaining portion of approximately HK$76.28 million were charged to the statement of profit or loss.

Capital Expenditure

The Group’s capital expenditure paid in 2019 was HK$215 million (2018: HK$700 million). The capital expenditure was mainly used for the development of the GDH City Project’s investment properties under development.

Financial Resources and Liquidity

As at 31 December 2019, the equity attributable to owners of the Company was approximately HK$4.76 billion (2018: HK$4.54 billion), representing an increase of approximately 4.8% over that in 2018. Based on the number of shares in issue as at 31 December 2019, the net asset value per share at the end of the year was approximately HK$2.78 (2018: HK$2.65) per share, representing an increase of approximately 4.9% over that in 2018.

As at 31 December 2019, the Group had cash and cash equivalents of approximately HK$1,001 million (2018: HK$836 million), representing a year-on-year increase of approximately 19.7%. The increase in the cash and cash equivalents mainly represented the property pre-sale and sale proceeds received during the year under review and net addition of bank and other borrowings of HK$647 million.

Of the Group’s cash and bank balances (including pledged bank deposit, restricted bank balances and cash and cash equivalents) as at 31 December 2019, 93.6% was in RMB, 5.8% was in USD and 0.6% was in HKD. Net cash outflows used in operating activities for the year amounted to HK$312 million (2018: net cash inflows from operating activities of HK$83 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 2019, the Group borrowed interest-bearing loans from certain banks and a fellow subsidiary of the Company in the aggregate amount of approximately HK$3,159 million (31 December 2018: HK$2,512 million), with a gearing ratio1 of approximately 44.7% (31 December 2018: 36.0%). According to the relevant loan agreements, approximately HK$681 million of the interest-bearing loans are repayable within one year; approximately HK$681 million are repayable within one to two years; and the remaining approximately HK$1,797 million are repayable within two to five years. With the unfavorable impact of a tightening financing market in 2019, the Group managed to control its finance costs effectively, with a weighted average effective interest rate of the Group’s bank and other borrowings of 4.83% per annum as at 31 December 2019 (31 December 2018: 5.11%). As at 31 December 2019, the available banking facilities to the Group were RMB450 million (equivalent to approximately HK$502 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, so as to ensure that adequate financial resources will be available to support its business development.

1 Gearing ratio = (Interest-bearing loans + lease liabilities – cash and cash equivalents) ÷ Net assets

As at 31 December 2019, certain property assets amounting to HK$2,167 million and the entire shares of GYPD as well as bank deposits amounting to HK$42.90 million of the Group were pledged for the purposes of securing bank loans and performance as stipulated under certain construction contracts, respectively. Except as the guarantees made to certain banks in relation to the mortgages of the properties sold of approximately HK$654 million as at 31 December 2019 (2018: HK$370 million), no material contingent liabilities was recorded as at 31 December 2019.

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 or the Greater Bay Area, 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 2019, the Group had outstanding interest-bearing loans amounting to approximately HK$3,159 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.

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. The Company’s internal management for environmental, social and governance (“ESG”) takes into consideration the views of various stakeholders, especially for important ESG issues, 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 and comprehensive 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 is currently in the process of preparing its ESG report for the year ended 31 December 2019. The information contained in this annual report is based solely on the Company’s ESG policies, performance, along with information of internal management. As at the date of this annual report, the ESG information of the Group for the year ended 31 December 2019 has yet to be finalised and may be subject to necessary adjustments. Such information, which may differ from the information contained in the 2019 annual report, is expected to be published in or before May 2020.

Human Resources

The Group had 269 (2018: 261) employees as at 31 December 2019. The total employee remuneration and provident fund contributions (excluding directors’ remuneration) in 2019 was approximately HK$106 million (2018: HK$82.97 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 under review. The Group offers different training courses to its employees.