Principal activities are property development; property investment for rental purposes; and manufacturing and trading of garments.
The Group's profit attributable to shareholders for the year ended 31-03-2017 amounted to HKD 419.4 million, an increase of 35.5% compared with previous corresponding period. Basic earnings per share was HKD 0.7607. A final dividend of HKD 0.05 per share was declared. Turnover amounted to HKD 1.65 billion, a decrease of 0.2% over the same period last year, gross profit margin up 6.4% to 39.1%. (Announcement Date: 29 Jun 2017)
Business Review - For the year ended March 31, 2017
The Group’s property development and investment activities are conducted by Hon Kwok Land Investment Company, Limited (“Hon Kwok”) (Stock Code: 160) and its subsidiaries (“Hon Kwok Group”). Hon Kwok Group reported a turnover of HK$1,574 million (2016: HK$1,570 million) and net profit attributable to shareholders of HK$585 million (2016: HK$460 million) for the financial year 2016/17.
Disposal of Properties
Dong Guan Zhuan Road 東莞莊路 project in Guangzhou
On 19 January 2017, Hon Kwok Group entered into a sale and purchase agreement with Yango City Group Co., Ltd. (listed in Shenzhen Stock Exchange) in relation to the disposal of Hon Kwok Group’s 75% interests of a bare site at Dong Guan Zhuan Road 東莞莊路 in Guangzhou, PRC via sale of its offshore holding company together with the assignment of related companies’ loans for a total cash consideration of Hong Kong dollar equivalent of RMB3,181,241,120 (approximately HK$3,581,269,000), subject to adjustments. The transaction is scheduled to be completed in August 2017 subject to fulfillment of certain conditions precedent. This constituted a very substantial disposal transaction for Hon Kwok and the Company and is subject to the reporting, announcement and shareholders’ approval requirements under Chapter 14 of the listing rules. The above transaction were approved by the shareholders in the respective extraordinary general meetings held on 25 May 2017. For details, please refer to the Company’s joint announcement dated 24 January 2017, circular dated 9 May 2017 and announcement dated 25 May 2017.
Car parking spaces in Hong Kong
In December 2016, grasping the opportunity of an uptrend in selling price of car parking spaces, Hon Kwok Group had realized all the car park units being held for investment at Lido Garden, Sham Tseng and Shining Court, Cheung Sha Wan as well as majority of those at Provident Centre, North Point at a reasonable return.
Property Development and Investment
The Botanica 寶翠園, comprises 39 blocks of high-rise residential building with a total gross floor area of approximately 229,000 sq.m., is situated in the greenery zone of Tian He District near the Botanical Garden. It is scheduled for development by phases. In the prior financial years, Botanica Phases 1 and 2 寶翠園一及二期, with a total 16 blocks of over 750 units, had been sold out and the relevant profits had been recognized in the previous financial statements. Botanica Phase 3 寶翠園三期, comprises 12 blocks of about 530 units, have also been sold out and eight blocks of which had been delivered in the prior financial year. The remaining four blocks have been delivered to individual purchasers during the year under review and the relevant profits were recognized in the current statement of profit or loss. Internal finishing works of Botanica Phase 4 寶翠園四期, comprises 11 blocks of about 550 units, are well in progress and the delivery of individual units of four blocks to purchasers have been commenced earlier this month with the remaining blocks expected to be delivered commencing last quarter of this year. Up to the date of this report, nearly all units of Botanica Phase 4 寶翠園四期 have been sold and total contracted sales exceeding RMB2,000 million.
Ganghui Dasha 港.大廈, a 20-storey commercial/office building, is situated at the junction of Beijing Road, Nanti Er Road and Baqi Er Road, Yue Xiu District. Its current occupancy rate is about 80%.
The newly acquired Jie Fang Building 解放大廈, a completed 15-storey commercial and office building situated at Jiefang Road South, Yue Xiu District, is being held by the Group for recurrent rental income and/or investment potential.
Foundation works of the project site at 45-107 Beijing Nan Road, Yue Xiu District are expected to be commenced by the end of this year.
Nanhai, Foshan, PRC
Metropolitan Oasis 雅瑤綠洲, situated in Da Li District, Nanhai with a total gross floor area of approximately 273,000 sq.m., is also scheduled for development by phases. Phase I of the project comprises 71 units of 3-storey town houses and 24 blocks of high-rise apartments of about 900 units. Up to the date of this report, over 95% of the above phase has been sold and generated sale proceeds exceeding RMB1,200 million and majority of the above apartment units have been delivered to individual purchasers. Phase 2 of the project comprises 192 units of 3-storey town houses of which finishing works are in progress and expected to be completed by stages commencing last quarter of this year through second quarter of next year. Portion of the town houses has been launched to the market for pre-sale and up to the date of this report, total contracted sales exceeding RMB370 million.
Construction works of Hon Kwok City Commercial Centre 漢國城市商業中心, with a total gross floor area of 128,000 sq.m. and situated at the junction of Shen Nan Zhong Road and Fu Ming Road, Futian District, are in progress and expected to be completed by end of this year. Thereafter, this 80-storey (including 5 storeys underground) commercial/office tower will be held by the Group for recurrent rental income.
City Square 城市天地廣場, situated at Jia Bin Road, Luo Hu District, is a 5-storey commercial podium. All the retail shops at ground level and the entire first floor of the podium are fully let. The Bauhinia Hotel (Shenzhen) 寶軒酒店（深圳）, a 162-room hotel at upper three floors of the above podium, maintained average occupancy and room rates at a satisfactory level. The average occupancy rate of City Suites 寶軒公寓, a 64-unit serviced apartments on top of the podium, is closed to 100%.
Enterprise Square 僑城坊, situated at Qiaoxiang Road North, Nanshan District, measures a site area of 48,764 sq.m. and with a total gross floor area of approximately 224,500 sq.m. It is being developed in two phases into 12 blocks of buildings for composite use in which Hon Kwok Group has 20% interest. Finishing works are well in progress and expected to be completed in last quarter of this year through third quarter of next year. Gross floor area of about 50,000 sq.m. of office nature have been pre-sold and generated sale proceeds amounting to approximately RMB2,000 million. It is the current intention that certain portion of the project of commercial/office nature to be retained for recurring rental income upon completion of construction.
The occupancy rate of Chongqing Hon Kwok Centre 重慶漢國中心, a 21-storey twin-tower office building atop of a 4-storey retail/commercial podium and situated at Bei Bu Xin Qu, is currently over 95%.
Chongqing Jinshan Shangye Zhongxin 重慶金山商業中心, a twin-tower project, is also situated at Bei Bu Xin Qu and adjacent to the above Chongqing Hon Kwok Centre 重慶漢國中心. It comprises a 41-storey grade A office tower and a 42-storey 5-star hotel plus office tower with respective 4-storey retail/commercial podium. The occupancy of the completed office tower has been progressed smoothly and renovation works of the hotel/ office tower are scheduled to be completed in last quarter of this year.
Hong Kong – Property Investment
Foundation works of the bare site at Kin Chuen Street, Kwai Chung, New Territories acquired via government public tender in prior years have been commenced and are expected to be completed in next year followed by superstructure works. It will be developed for non-residential use with a total gross floor area of approximately 228,000 sq.ft. for recurrent rental income.
The average occupancy rate of The Bauhinia Hotel (Central) 寶軒酒店（中環）, a 42-room boutique hotel situated at four podium floors of the hotel/apartment building at Connaught Road Central and Des Voeux Road Central, is above 95% with encouraging room rates whilst that of The Bauhinia 寶軒, a 171-room serviced apartments atop of the above hotel, is about 85%. The retail areas at street level of the aforesaid building are fully let.
The average occupancy and room rates of The Bauhinia Hotel (TST) 寶軒酒店（尖沙咀）, a 98-room boutique hotel occupying total 20 floors of a 23-storey commercial/office building at Observatory Court, Tsim Sha Tsui, are both satisfactory. All the remaining floors of the above building have been leased out for commercial use including a restaurant.
The current occupancy rate of Hon Kwok Jordan Centre 漢國佐敦中心, a 23-storey commercial/ office building situated at Hillwood Road, Tsim Sha Tsui, exceeds 95%.
J.L. Garment Group, a wholly-owned subsidiary of our Company with garment factory situated at Dongguan, the Mainland China, reported a turnover of HK$79 million (2016: HK$86 million) with a net loss of HK$2.4 million (2016: loss HK$14.2 million) for the year ended 31 March 2017.
The Group’s garment business, which focused on fashionable garment production in Mainland China and exported mainly to European market, continued facing a tough year filled with uncertainties. Economic growth in major European countries remained subdued and economic performance showed divergence across different countries of which economic activities in Germany outpaced that in France and Italy. The feeble consumer market continued to hamper domestic demand and hit our garment net profit margin.
J.L. Garment Group is under transformation and is scaling down its business structure to reduce overhead, as well as implementing stringent measures on cost control. In the course of business restructuring, it reduced the office plan in the Hong Kong operation and intended to lease out the whole floor of vacated office space. Due to the booming local property market, J.L. Garment Group recorded a property revaluation gain of HK$17.5 million (2016: loss of HK$0.1 million) on its investment properties held for investment and rental income.
To strive for improved profitability, J.L. Garment Group endeavors to broaden its new customer base in the European countries while exploring new business opportunities in the local and Asia markets.
3. Construction and Trading
Chinney Alliance Group Limited (“Chinney Alliance”) (Stock Code: 385), a 29.1% owned associate recorded turnover and net profit attributable to shareholders for the year ended 31 December 2016 of HK$4,571 million (2015: HK$4,552 million) and HK$209.9 million (2015: HK$169.1 million).
Chinney Alliance’s foundation piling and ground investigation businesses are conducted by Chinney Kin Wing Holdings Limited (“Chinney Kin Wing”) (Stock Code: 1556), a 74.5% owned subsidiary listed on the Main Board of Hong Kong Stock Exchange in November 2015. Chinney Kin Wing reported a revenue of HK$1,356 million (2015: HK$1,515 million) and operating profit of HK$119.4 million (2015: HK$168.9 million). The decrease in revenue was mainly due to the substantial completion of certain sizeable projects awarded in previous years, whereas the projects undertaken during the year under review were smaller in contract sum. Profit margin also dropped slightly due to keen competition in the foundation industry with less tenders available for the foundation sector in Hong Kong and Macau. Besides, depreciation charges were increased due to the enhancement of piling plant and machinery in past years, resulting in a drop of net profit.
The Building Construction division, mainly consists of Chinney Construction Company Limited, a wholly owned subsidiary of Chinney Alliance Group, engaged in superstructure construction works, contributed a revenue of HK$1,079 million (2015: HK$1,120 million) and operating profit of HK$65.7 million (2015: HK$35.0 million). Although revenue dropped slightly, operating profit increased substantially due to the improved profit margin for new projects as well as the contribution from projects commenced in 2015 which had been substantially progressed with profit recognition in the year under review.
The Building related contracting services division, consists of Shun Cheong Investments Limited and its subsidiaries, engaged in the electrical and mechanical contracting businesses, contributed a revenue of HK$1,584 million (2015: HK$1,349 million) and operating profit of HK$102.5 million (2015: HK$25.4 million). Operating profit improved substantially due to the increase in number of contracts, coupled with the implementation of cautious cost control and project management measures.
The Plastic Trading division recorded a slight decrease in operating profit resulted from the tough international trade environment. Nevertheless, the division continues to develop diversified products to enhance its profitability.
4. Transferable term and revolving loan facilities
In view of the liquidity of the money market coupled with the favourable interest margin last year, the management believed that it would be in the best interest to raise new facilities to average down the funding cost of the Group as a whole. In October 2016, Chinney Treasury Limited (“Chinney Treasury”), a wholly-owned subsidiary of the Company, as borrower entered into a facility agreement relating to HK$1,000 million transferable term and revolving loan facilities with a syndicate of banks. The loan facilities have a term of 48 months commencing from the date of the facility agreement and have been used for refinancing the existing loan facilities leaving the balance for further investment, as appropriate, and for financing the Group’s general working requirements.
Business Outlook - For the year ended March 31, 2017
Looking forward, the policy uncertainty, geopolitical risk and the US interest rate hike are threatening the global recovery. In the United States, the stock markets regained momentum and are expected to strengthen the economic upturn as reflected by the satisfactory economic indicators in GDP growth, unemployment and inflation. However, uncertainty about future policy direction, together with the normalization of interest rates pose downside risks to its growth prospect. For the Eurozone countries, they continued to exhibit divergence in growth performance, with major economies including Italy and Spain, still struggling to achieve sustainable growth. Nonetheless, it is likely that the long process of unwinding the ties with the European Union following the Brexit referendum will induce further volatility in the Eurozone.
In 2016, GDP growth in the Mainland China reached 6.7% and is forecast to be slightly slowdown in 2017. During the period under review, the real estate market remained robust. It is expected that the restrictive measures implementing in the major cities will continue in near term to contain the underlying risks of the booming property market. In light of the prevailing risks including the high level of corporate leverage and rapid credit growth in the China market, it is anticipated that further tightening policies may be imposed by the Central Government to stabilize the economy.
In Hong Kong, the economy remained stable under the low unemployment and stable income environment. Nevertheless, the prices of residential and commercial properties continued to upsurge throughout the year despite the government’s cooling measures including the rise in stamp duty and further tightening of property mortgage. In view of the prevailing risks in the property market, as reflected by the worsening residential affordability and the foreseeable interest rates rise, the local property market may become more erratic in the year ahead.
Source: Chinney Investment (00216) Annual Report 2017