First six months of 2020

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, as well as the Chenyuan Road Project in Pengjiang District, Jiangmen City, the People’s Republic of China (the “PRC”). On 29 May 2020, the Group has also succeeded in the bid for the land use rights of a state-owned construction land located in Jinwan District, Zhuhai City, through the public Listing-for-Sale Process (the “Zhuhai Jinwan Project”).
 
According to the information of National Bureau of Statistics of the PRC, the preliminary gross domestic product (“GDP”) for the first half of 2020 showed an overall decline of approximately 1.6% from that of the same period last year but GDP growth in the second quarter of the year realised a turnaround from negative to positive, increased by 3.2% from the second quarter of the previous year and by 11.5% from the first quarter of the year while per capita nominal disposable income of national residents recorded a year-on-year growth of approximately 2.4%. According to the price indices of newly built commodity residential properties in 70 large- to medium-sized cities in June 2020, the price indices of newly built residential properties in Guangzhou City and Shenzhen City increased by approximately 0.5% and 5.3%, respectively, from that for June 2019. In the first half of 2020, Jiangmen City and Zhuhai City, which are located in the Guangdong-Hong Kong-Macao Greater Bay Area (the “Greater Bay Area”), have both loosened household registration restrictions, which is expected to attract more population inflow, encourage usual residents to acquire urban residency status, stimulate the demand for home ownership and bring more growth potential to the development of the local real estate industry.
 
During the first half of the year, the outbreak of Coronavirus Disease 2019 (the “COVID-19 outbreak”) impacted global economic activities. With the gradual control of COVID-19 outbreak in the PRC and the orderly restoration of economic and social order, the PRC’s economy has been steadily recovering with a downward trend followed by an upward trend, adding momentum to the global economic recovery. In the face of the complicated internal and external environment and the influence from the COVID-19 outbreak, the management of the Company adhered to the general principle of prudent development, closely monitored the COVID-19 outbreak and the market situation, formulated timely countermeasures and carried out the project construction including the GDH City Project cautiously in accordance with the requirements of “safeguarding quality, ensuring speed and meeting schedule”, as well as established an online sales system platform and increased marketing efforts to reduce the impact of the COVID-19 outbreak. The Company focus on building up its strength with reference to other key peers in the real estate industry, conducting in-depth analysis of the current market transactions and the potential major cities and districts that we chose to invest, and optimising its product structure based on the mainstream market demand and the core demands of its major customers. The Company engaged in coordinating internal and external resources and seizing development opportunities in major cities in the Greater Bay Area and covered by “Core, Coastal Belt and Zone 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 a healthy growth of the Group’s business, it has also formulated comprehensive short-term, medium-term and long-term funding plans that tap into two 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$1,898 million (six months ended 30 June 2019: HK$464 million), representing an increase of approximately 309.0% from the same period last year. The increase in revenue was mainly attributable to the increase in the sale of gross floor area (“GFA”) of properties held for sale. During the period under review, the Group recorded a profit attributable to owners of the Company of approximately HK$1,737 million (six months ended 30 June 2019: loss of approximately HK$33.89 million). During the period under review, profit attributable to owners of the Company before taking into account of the net fair value gains on investment properties and the relevant deferred tax expense was approximately HK$316 million.

The major factors that affected the said anticipated results of the Group for the six months ended 30 June 2020 include the following:

  1. completion of works (竣工備案) has been filed for the properties built on the Northwestern Land of the GDH City Project and the Group has started to deliver properties to the purchasers in June 2020. Due to the relative high profit margin of the properties built on the Northwestern Land of the GDH City Project, resulting in a significant increase in revenue and profit as compared to the same period in 2019;

  2. the properties built on the Southern Land of the GDH City Project are classified as investment properties under development and its construction permit in relation to the main construction was obtained on 15 January 2020. As at 30 June 2020, the fair value of such investment properties under development could be reliably measured and the Group adopted a fair value model to measure such investment properties under development for the first time and changes in the fair value of such investment properties under development would be recognised in the consolidated statement of profit or loss. After taking into account the relevant deferred tax expense, the investment properties contributed approximately HK$1,421 million (six months ended 30 June 2019: HK$2.765 million) to the Group’s profit after tax for the period;

  3. an increase in the selling and marketing expenses of approximately HK$45.74 million when comparing with the same period in 2019 due to the increase in revenue and sales activities; and

  4. the Group recorded net exchange gains of approximately HK$12.17 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 (“RMB”) due to the Company from a subsidiary of the Company. There was no such settlement during the period under review.

 
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 2020 (six months ended 30 June 2019: nil).
 

Business Review


Completed Properties Held for Sale

Property project

Location

Usage

Interest held by the Group

Approximate GFA
(sq. m.)

Accumulated GFA contracted
(sq. m.)

Approximate GFA delivered

The accumulated proportion of GFA delivered to GFA available for sale

           

Period under review
(sq. m.)

Accumulated
(sq. m.)

 

Northwestern Land of the GDH City

Shenzhen City,
the PRC

Business apartment/ Commercial

100% 114,654 18,623 17,582 17,582 15.3%

Laurel House

Guangzhou City,
the PRC

Residential

100% 65,636 39,777 9,053 31,771 48.4%

Baohuaxuan

Guangzhou City,
the PRC

Residential

100% 3,884 3,684 123 3,681 94.8%

Ruyingju

Guangzhou City,
the PRC

Residential

80% 94,617 94,424 2,230 94,329 99.7%

Ruyingju

Guangzhou City,
the PRC

Car-parking spaces

80% 8,052 3,858 12 3,858 47.9%


During the period under review, the Group’s properties recorded a total GFA contracted and delivered of approximately 16,000 square metres (“sq. m.”) and 29,000 sq. m. respectively.

Properties Held for Sale and Investment Properties under Development

Property project

Location

Usage

Interest held by the Group

Approximate total site area
(sq. m.)

Approximate GFA*
(sq. m.)

Progress

Expected completion and filing date

Northern Land of the GDH City Project

Shenzhen City,
the PRC

Commercial/ Offices/Mall

100% 33,802 146,551 Construction of basement structural works in progress 2nd half of 2022

Southern Land of the GDH City Project

Shenzhen City,
the PRC

Offices/Mall

100% 16,044 199,500 Construction of basement structural works in progress 2023

Chenyuan Road Project

Jiangmen City,
the PRC

Residential/ Commercial service

100% 59,705 164,216 Earthmoving and piling works in progress 2nd half of 2022

Zhuhai Jinwan Project

Zhuhai City.
the PRC

Residential/ Commercial

100% 66,090 166,692 At early stage of the project, site hoarding and temporary electrical works in progress 2024


*Note: Including (1) underground commercial of the GDH City Project with a GFA of 30,000 sq. m.; and (2) common area and area transfer to the government of each project.

The GDH City Project
 
The Group holds 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 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.
 
During the period under review, the Group paid close attention to the COVID-19 outbreak situation as well as the economic and market development, and while carrying out proper epidemic prevention and control, the Group also formulated timely sales and marketing plans for the project and kept the construction schedule on
track. The completion of works (竣工備案) of the Northwestern Land properties in respect of the first phase of the GDH City Project has been filed in June 2020, and delivery of properties and revenue recognition of the GDH City Project were made during the period under review for the first time. The construction of the Northern Land and the Southern Land of the second phase of the project is progressing according to plan.
 
In relation to the search for potential commercial occupiers, the Group continued to collaborate with the Shanghai Diamond Exchange (“SDE”) on project promotions and activities and benefit from the utilisation of core business resources of SDE and other parties. During the period under review, the Group commenced the preliminary sale works in relation to the bulk sale transaction of office buildings on the Northern Land to pave the way for the official sale of the project.
 
As at 30 June 2020, the cumulative development costs and direct expenses of the GDH City Project amounted to approximately HK$4,877 million (31 December 2019: HK$4,490 million), representing a net increase of approximately HK$387 million during the period under review.
 
The Laurel House Project, the Baohuaxuan Project and the Ruyingju Project
 
In response to the impact of the COVID-19 outbreak, the Group promptly reviewed and optimised the sales proposal for the Laurel House Project and stepped up its marketing efforts. For the six months ended 30 June 2020, the total GFA of residential units which had been delivered to customers amounted to approximately 9,053 sq. m. (six months ended 30 June 2019: 4,440 sq. m.), representing an increase of approximately 103.9% as compared to the same period last year.
 
The commercial property, GD•Delin (粤海•得鄰) (the name of the commercial properties under the Laurel House Project) has entered the operation stage. During the period under review, the Group took proactive
measures to cope with commercial tenants of the project hindered by the COVID-19 outbreak by providing rental concessions in a timely manner. In addition, 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. its core positioning “high-end education-oriented community”. As at 30 June 2020, total GFA of lease contracts signed in respect of the commercial properties of the Laurel House Project were approximately 15,334 sq. m. with an occupancy rate of approximately 83.5%.
 
The Group acquired the interests in the Laurel House, Baohuaxuan and Ruyingju Projects in previous years, respectively. As the considerations paid for the acquisition of these projects were determined with reference to the then market values of these projects (but acquired at a discount), the carrying values (and future costs of sales) of properties of such projects included their development costs and fair value appreciation as of the completion date of the acquisitions.
 
The Chenyuan Road Project
 
During the period under review, the Chenyuan Road Project has obtained the permit for planning construction projects and construction permit, and is currently undergoing the foundation pit support, foundation piling construction and earth-and-stone excavation. The project will be developed by phases, with the first phase of the property development expected to reach pre-sale condition by 2021 and completion of works ready for filing in the second half of 2022.
 
Material Acquisition – Successful Bidding for the Land Use Rights of a Land Parcel in Aviation New Town, Jinwan District, Zhuhai City
 
On 29 May 2020, the Group has succeeded in the bid for the land use rights of the land parcel at Aviation New Town, Jinwan District, Zhuhai City through the public Listing-for-Sale Process with consideration amounted to RMB2,295 million (equivalent to approximately HK$2,495 million). The land parcel is located at the land lot west to Jinhui Road and north to Jinhe East Road in Jinwan District, Zhuhai City, the PRC with a site area of approximately 66,090 sq. m. and a maximum GFA included in the calculation of the plot ratio of approximately 166,692 sq. m., which is expected to be used for commercial and residential purposes. All properties are expected to be held for sale.
 
The land piece is located in an area with high value potentials and will improve the future development of the project. It is expected that there will be sound living and education amenities in the area. With the significant advantage in terms of location resources, the project enjoys promising market prospects. 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 the development of new projects in the Greater Bay Area and first-tier and second-tier cities in Mainland China. The acquisition of the target land is in line with the core business and development direction of the Group. The Group has set up a wholly-owned subsidiary that is responsible for the development of the project and will invest appropriate resources to advance the development and construction of the site. During the period under review, the project has completed the preliminary geological investigation and detailed borehole survey, the foundation of western site hoarding, soft foundation treatment plan and the pit support blueprint of the southern site, and has obtained the business license of the project company. It is expected that the construction permit will be obtained in the second half of 2020 and completion of works of the project is expected to be filed in 2024.

Financial Review


Key Financial Indicators

   

 

 Six months ended 30 June 

 
 

Note

2020

2019

Change

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

 

1,736,811

(33,891)

N/A

Return on equity (%)

1

31.13%

(0.75%)

N/A

   

30 June 2020

31 December 2019

Change

Net assets (HK$ million)

 

6,501

4,870

+33.5%


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 2020, the Group recorded a significant increase in profit attributable to owners of the Company as compared to the same period last year. The substantial increase was mainly due to the completion of filing in respect of the completed construction of the properties on the Northwestern Land of the GDH City Project in June 2020 and the commencement of delivery of properties to purchasers as well as the significant fair value gains on investment properties. For details, please refer to the “Results” section in this Management Discussion and Analysis.
 
Operating Income, Expenses and Finance Costs

During the first half of 2020, the Group recorded selling and marketing expenses of approximately HK$76.53 million (six months ended 30 June 2019: HK$30.79 million), representing an increase of approximately 148.6% from that for the same period last year. The increase in selling and marketing expenses was mainly due to the increase of sales and marketing activities, and sales commissions and other expenses in relation to the GDH City Project and Laurel House Project. The Group’s administrative expenses for the first half of 2020 amounted to approximately HK$62.34 million (six months ended 30 June 2019: HK$50.18 million), representing an increase of approximately 24.2% from that for the same period last year, mainly due to an increase in wages and related expenditures and an increase in the business taxes and surcharges of approximately HK$7.57 million from the same period last year due to an increase in revenue.
 
During the period under review, the Group borrowed loans to support its business development and recorded finance costs of approximately HK$81.87 million (six months ended 30 June 2019: HK$65.72 million), of which approximately HK$59.91 million was capitalised while the remaining portion of approximately HK$21.96 million was charged to the statement of profit or loss.
 
Capital Expenditure
 
The amount of capital expenditure paid by the Group during the first half of 2020 was approximately HK$195 million (six months ended 30 June 2019: HK$65.10 million), representing an increase of approximately 200% 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 2020, the equity attributable to owners of the Company was approximately HK$6,393 million (31 December 2019: HK$4,764 million), representing an increase of approximately 34.2% from that as at the end of 2019. Based on the number of shares in issue as at 30 June 2020, the net asset value per share attributable to owners of the Company at the period end was approximately HK$3.74 (31 December 2019: HK$2.78) per share, representing an increase of approximately 34.5% from that as at the end of 2019.
 
As at 30 June 2020, the Group had total cash and cash equivalents of approximately HK$2,394 million (31 December 2019: HK$1,001 million), representing an increase of approximately 139.2% from that as at the end of last year. The increase in cash and cash equivalents was mainly due to more proceed from property sales and new interest-bearing loans during the period under review. The main purpose for such new interest-bearing loans is to satisfy the funding needs for the Group’s business development.
 
Of the Group’s cash and bank balances (including pledged bank deposit, restricted bank balances and cash and cash equivalents) as at 30 June 2020, approximately 97.4% was in RMB, approximately 2.5% was in USD and approximately 0.1% was in HKD. Net cash inflows from operating activities for the first half of 2020 amounted to approximately HK$255 million (six months ended 30 June 2019: HK$206 million).
 
As most of the transactions in 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 2020, the Group borrowed loans from certain banks and a fellow subsidiary of the Company in an aggregate amount of approximately HK$4,488 million (31 December 2019: HK$3,159 million) with a gearing ratio1 of approximately 32.4% (31 December 2019: 44.7%). According to the relevant loan agreements, approximately HK$666 million of the interest-bearing loans are repayable within one year; approximately HK$668 million are repayable within one to two years; and the remaining approximately HK$3,154 million are repayable within two to five years. As at 30 June 2020, the weighted average effective interest rate of the Group's interest-bearing loans was approximately 4.66% (31 December 2019: 4.83%) per annum. As at 30 June 2020, unutilised bank and other loan facilities available to the Group amounted to approximately RMB2.00 billion (equivalent to approximately HK$2.19 billion) 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 loans + Lease liabilities - Cash and cash equivalents) ÷ Net assets
 
Asset Pledged and Contingent Liabilities
 
As at 30 June 2020, the Group’s certain real estate amounting to approximately HK$4,529 million (31 December 2019: HK$2,167 million) and the entire share capital of 廣東粤海房地產開發有限公司 (Guangdong Yuehai Property Development Co., Ltd.) were pledged to secure certain bank loans; and bank deposits amounting to approximately HK$42.07 million (31 December 2019: HK$42.90 million) were pledged for bank guarantees as stipulated by certain construction contracts.
 
In addition, as at 30 June 2020, the Group provided guarantees (please refer to note 16 to the interim financial information of the 2020 interim report for details) of approximately HK$656 million (31 December 2019: HK$654 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 2020.

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. At present, property projects held by the Group are all located in first-tier cities or the Greater Bay Area 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 seek external funding to partially finance the development of such projects. As such, financing channels and finance costs are subject to the prevailing market conditions, loan interest rates and the financial position of the Group. As at 30 June 2020, the Group had total outstanding interest-bearing loans of approximately HK$4,488 million.
 
According to the applicable accounting standards, investment properties of the Group were carried at fair value. The fair value of such investment properties is subject to the prices in the property markets in which they are located as at the end of the respective reporting periods. The fair value changes of such investment properties are recognised in the statement of profit or loss and affect the results for the period.
 
As the property development business 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 investment properties under development of the GDH City are held by the Group for lease in order to generate stable rental income for the Group in the future.

Policy and Performance on Environmental, Social and Governance


The Group strictly complies with the 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 and comprehensive communication with all stakeholders from multiple perspectives 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 2019 ESG report and published it in May 2020. 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 2019. 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 2020, the Group had 364 (31 December 2019: 269) 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.