Principally engaged in property development, property investment and property related activities.
The Group's profit attributable to shareholders for the 6 months ended 30-09-2019 amounted to HKD 224.4 million, a decrease of 61.0% compared with previous corresponding period. Basic earnings per share was HKD 0.3114. No dividend declared. Turnover amounted to HKD 374.7 million, a decrease of 68.3% over the same period last year, gross profit margin up 16.1% to 70.4%. (Announcement Date: 27 Nov 2019)
Business Review - For the six months ended September 30, 2019
(i) Property Development
For the six months ended 30 September 2019, the property development segment revenue was HK$218 million compared with HK$1,067 million in 2018. Segment profit before taxation was HK$163 million compared with HK$568 million in 2018. The revenue and profit were attributable to delivery of the sold units in Botanica and Metropolitan Oasis.
The Group’s property development projects are located in Mainland China comprising mainly (i) The Botanica in the Tian He District of Guangzhou in which the Group owns 60% interest; (ii) Metropolitan Oasis, the Group’s wholly owned project in the Da Li District of Nanhai; (iii) 45-107 Beijing Nan Road, the Group’s wholly owned project in the Yue Xiu District of Guangzhou and (iv) Enterprise Square in the Nanshan District of Shenzhen in which the Group owns 20% interest.
The Botanica with a total gross floor area of approximately 229,000 square meters was developed in phases. The final phase of the development was completed in December 2016 with all residential units already sold out in prior years. For the six months ended 30 September 2019, the Group booked revenue of HK$97 million (2018: HK$945 million) from the units delivered during the period. As at 30 September 2019, the contracted property sales of the remaining units but not yet booked amounted to RMB34 million.
Metropolitan Oasis with a total gross floor area of approximately 273,000 square meters was also developed in phases. Phase 3 of the project, comprising 19 blocks of high rise apartments of approximately 550 units, is scheduled for completion next year. For the six months ended 30 September 2019, the Group booked revenue of HK$121 million (2018: HK$122 million) from the units of phase 1 and phase 2 delivered during the period. In September 2018, the Group launched part of the units in phase 3 to the market for pre-sale and achieved satisfactory results. As at 30 September 2019, the contracted property sales but not yet booked amounted to RMB749 million.
The site at 45-107 Beijing Nan Road, which is adjacent to the pedestrian street and the Pearl River, will be developed into a 30-storey residential building and a 32-storey commercial/office building. Foundation works for the project are in progress.
Enterprise Square, situated at Qiaoxiang Road North, Nanshan District, covers a site area of approximately 49,000 square meters and a total gross floor area of approximately 224,500 square meters. It has been developed into a commercial complex composed of office towers, a residential apartment tower and a commercial mall offering dining and entertainment facilities to the tenants. Development for the entire project was completed in June 2018. The office portion and the residential apartment have been launched to the market for sale. For the six months ended 30 September 2019, the project realized revenue of RMB1,394 million (2018: RMB1,751 million). As at 30 September 2019, the contracted property sales but not yet booked amounted to RMB121 million. Net profit attributable to the Group in respect of Enterprise Square, including an increase in fair value of an office tower, the residential apartment tower and the commercial mall which are classified as investment properties, amounted to HK$88 million (2018: HK$149 million) for the six months ended 30 September 2019.
(ii) Property Investment
For the six months ended 30 September 2019, the property investment segment revenue was HK$140 million compared with HK$103 million in 2018. Segment profit before taxation was HK$191 million compared with HK$405 million in 2018. Excluding the change in fair value of investment properties, segment profit before taxation was HK$78 million compared with HK$56 million in 2018, such increase in revenue and profit was mainly attributable to the commencement of leasing activities of Hon Kwok City Commercial Centre in Shenzhen and the opening of the hotel at Chongqing Jinshan Shangye Zhongxin after its refurbishment works finished in the fourth quarter of 2018. Leasing of Hon Kwok City Commercial Centre is progressing well and it is expected that the recurrent income base of the Group will be significantly improved.
Property Investment – Hong Kong
The Group’s completed investment property portfolio in Hong Kong with a total gross floor area of approximately 246,000 square feet comprises (i) Hon Kwok Jordan Centre, a commercial/office building at Hillwood Road, Tsim Sha Tsui; (ii) The Bauhinia, a hotel cum serviced apartment property at Connaught Road Central and Des Voeux Road Central; and (iii) The Bauhinia Hotel (TST), a hotel property at Observatory Court, Tsim Sha Tsui. Average occupancy of the properties reached 85% for the six months ended 30 September 2019 (2018: 95%) amid the deteriorating business environment caused by the recent social incidents. Occupancy of our hotel properties has dropped due to the decline in tourists arrivals to Hong Kong since July 2019.
The Group’s investment property under development in Hong Kong comprises a construction site at Kin Chuen Street, Kwai Chung, New Territories, providing a gross floor area of approximately 228,000 square feet. It is being developed into a data centre for rental purpose. Superstructure works are progressing smoothly and the project is scheduled for completion in the first quarter of 2020. Pre-leasing discussions of the building are currently underway.
Property Investment – Mainland China
The Group’s completed investment property portfolio in Mainland China with a total gross floor area of approximately 446,000 square meters comprises (i) Hon Kwok City Commercial Centre, a commercial/office building at the Futian District of Shenzhen (ii) City Square/The Bauhinia Hotel (Shenzhen), a commercial podium comprising shops and hotel rooms at the Luo Hu District of Shenzhen, (iii) City Suites, serviced apartment units atop of City Square at the Luo Hu District of Shenzhen, (iv) Ganghui Dasha, a commercial/office building at the Yue Xiu District of Guangzhou, (v) Chongqing Hon Kwok Centre, a twin-tower office building atop of a commercial podium at the Bei Bu Xin Qu of Chongqing and (vi) Chongqing Jinshan Shangye Zhongxin, an office tower and a hotel/office tower each with a commercial podium at the Bei Bu Xin Qu of Chongqing. The properties, excluding Hon Kwok City Commercial Centre which has been completed recently and was at the stage of renovation by the tenants during the period, achieved an average occupancy of 74% for the six months ended 30 September 2019 (2018: 74%).
Property Investment – Valuation
The Group’s investment properties, including the data centre project which is at its final stage of development, were fair valued at HK$14,099 million as at 30 September 2019 (as at 31 March 2019: HK$14,297 million, including the data centre project stated at cost). After netting off the additions to investment properties and the exchange loss arising from depreciation in Renminbi during the period, the increase in fair value of the Group’s investment properties amounted to HK$113 million (2018: HK$349 million) for the six months ended 30 September 2019.
(iii) Property and carpark management
For the six months ended 30 September 2019, the property and carpark management segment revenue was HK$17 million compared with HK$14 million in 2018. Segment profit before taxation was HK$0.3 million compared with HK$0.9 million in 2018. The profit contributions were adversely affected under the recent social unrest. As at 30 September 2019, the Group managed 10 car parks (31 March 2019: 11 car parks) with 1,980 parking spaces (31 March 2019: 2,000 parking spaces).
Business Outlook - For the six months ended September 30, 2019
Looking ahead, substantial uncertainties are clouding the global economic growth which continues to be fragile. The re-escalation of trade conflicts arose from the imposition of increased tariff by the United States, followed by the retaliatory actions of China. The lingering trade disputes posed substantial downside risks and weighed on export trades in the two largest economies in the world. Nevertheless, it showed some signs of reaching an initial trade agreement to remove the additional tariff in phases in the near future. On the other hand, it is expected that the Federal Reserve will continue its monetary easing policies vigilantly to alleviate the downward risk in tandem with maintaining a strong labour market and an inflation rate of around 2% target. In view of the prevailing challenges, including the protracted trade disputes, geopolitical tensions and the possibility of agreeing a Brexit deal within the three-month extension granted, it is likely that the erratic business environment will continue in the near term.
In Mainland China, economic growth weakened to 6% (bottom end of government’s target) in the third quarter of 2019 amid the ongoing US-China trade conflicts and lacklustre domestic market. Under the city-specific housing policies adopted in prior years, the real estate market has been stabilised and recovering. Nevertheless, the expected economic slowdown has dampened buyers’ confidence and investment sentiment. Confronting the mounting headwinds, it is expected that the Central Government will implement fiscal stimulus and monetary easing measures to bolster economic growth while maintaining supervision over financing activities in the real estate market to control financial risks with an aim to striving for a stable and healthy real estate market.
Hong Kong, being a small economic entity, is highly susceptible to external uncertainties including the trade protectionism and the US monetary policy, has been adversely affected by the global economic downturn. Furthermore, impacting by the recent prolonged social incidents, Hong Kong economy has experienced a sharp contraction, particularly, the inbound tourism, retailing and catering sectors were seriously hit. Consequently, shrinkage in GDP of 2.9% year-on-year was recorded in the third quarter of 2019. Under the local Government’s easing measures introduced recently to boost economic growth, it is anticipated that the residential properties will remain resilient as supported by solid demand and the relaxation of mortgage ceiling, whilst the office and retail property markets will continue to be influenced by the economic sentiment.
Source: Hon Kwok Land Inv (00160) Interim Results Announcement