The principal activities are property development and investment, construction, hotel operation, finance, department store operation, project management, investment holding and property management.
The Group's profit attributable to shareholders for the 6 months ended 30-06-2019 amounted to HKD 7.52 billion, a decrease of 50.0% compared with previous corresponding period. Basic earnings per share was HKD 1.5524. An interim dividend of HKD 0.5 per share was declared. Turnover amounted to HKD 8.13 billion, a decrease of 38.1% over the same period last year, gross profit margin down 0.5% to 51.1%. (Announcement Date: 21 Aug 2019)
Business Review - For the six months ended June 30, 2019
During the reporting period, the Sino-US trade disputes remained unresolved. In February 2019, the Hong Kong SAR Government proposed to amend the Fugitive Offenders Ordinance and there ensued a series of intensifying public protests from 9 June onwards. A tense social atmosphere over the past two months has added uncertainties to the property market. Against this backdrop, Hong Kong’s property market remained resilient during the period, with solid housing demand from local end-users as well as a prevailing low mortgage interest rate.
The Group launched various residential projects in the earlier part of the reporting period, namely “The Vantage” in Hung Hom, “The Addition” in Cheung Sha Wan and “Timber House” in Ho Man Tin, all of which sold well and were not affected by the social unrest. Existing projects such as “Reach Summit – Sereno Verde Phase 5” in Yuen Long, “Eden Manor” adjacent to the Hong Kong Golf Club in Fanling, as well as a number of urban redevelopment boutique residences, “The H Collection”, were also released at opportune moments achieving encouraging responses. Together with the disposal of some other commercial properties and car parks, the Group sold HK$7,881 million worth of Hong Kong properties in attributable terms for the six months ended 30 June 2019.
After the end of the reporting period, the Group entered into an agreement in July 2019 to sell its equity interest in the company holding interests in certain land lots in Wo Shang Wai, New Territories, which cover a total site area of about 2,420,000 square feet, for an aggregate consideration of HK$4,705 million (subject to adjustments) to an independent third party. The transaction is scheduled for completion in January 2020 (except where the purchaser can before completion substantiate that the relevant project cannot be developed as provided in the agreement). The purchaser has the right to bring forward the completion date.
In March 2019, a joint venture formed by the Group and various developers won the tender for a residential site at New Kowloon Inland Lot No. 6576 in Kai Tak Development Area at a consideration of HK$9,893 million, of which 30% or about 217,000 square feet in gross floor area is attributable to the Group. In May 2019, another joint venture of the Group also won the bid for a harbour-front residential land lot at New Kowloon Inland Lot No. 6552 in Kai Tak Development Area at a consideration of HK$12,590 million, of which 18% or about 115,000 square feet in gross floor area is attributable to the Group.
The Group has made use of diversified channels to replenish its development land bank in Hong Kong. Except for a few projects earmarked for rental purposes, there will be ample supply of saleable areas for the Group’s property sales in the coming years.
In March 2019, a joint venture formed by the Group and various developers won the tender for a residential site at New Kowloon Inland Lot No. 6576 in Kai Tak Development Area at a consideration of HK$9,893 million, of which 30% is attributable to the Group. In May 2019, another joint venture of the Group also won the bid for a harbour-front residential land lot at New Kowloon Inland Lot No.6552 in Kai Tak Development Area at a consideration of HK$12,590 million, of which 18% is attributable to the Group. Details of the additions of summarised.
Land in Urban Areas
In addition to those already in the sales pipeline as mentioned above, the Group has urban redevelopment projects of old tenement buildings with entire or over 80% ownership acquired, representing a total attributable gross floor area of about 4.3 million square feet, which are expected to be available for sale or lease in 2020 or beyond. The total land cost of such projects is estimated to be about HK$36,993 million (including the pricey street shops and the project at the prestigious Seymour Road in Mid-Levels), translating into a land cost of approximately HK$8,600 per square foot of gross floor area.
By acquiring old tenement buildings for urban redevelopment, owners of the dilapidated properties can upgrade to homes with much better living conditions, whilst the old districts will be revitalized. During the period under review, the sites for various existing projects were enlarged following the Group’s acquisition of the adjacent buildings. The redevelopment in West Kowloon adjacent to the Olympic MTR station is a manifest example. The Group’s various projects spanning Ka Shin Street, Li Tak Street, Kok Cheung Street, Fuk Chak Street, Pok Man Street, Man On Street and Tai Kok Tsui Road are now jointly being developed under the “Square Mile” brand, providing an aggregate gross floor area of over 1.0 million square feet. With a diverse flat mix of housing units and a chic shopping mall, “Square Mile” is complemented by an open-air piazza for cultural and leisure activities, resulting in the previously rundown district being revitalized into a vibrant neighbourhood. The first two phases of its development (namely, “Eltanin•Square Mile” and “Cetus•Square Mile”), which boast a total gross floor area of about 350,000 square feet, have been launched and about 90% of their total residential units were sold.
By making reference to the approach of “Square Mile”, the Group is now conducting comprehensive planning in Hung Hom. Various projects spanning Gillies Avenue South, Baker Street, Whampoa Street and Bulkeley Street will be jointly developed into another 1,000,000-square-foot revitalized community, improving the vibrancy and living convenience for its residents. In addition, the Group’s 22.80%-owned residential-cum-commercial project at Yau Tong Bay is in the process of application for land exchange. This large-scale development, with residences that enjoy stunning views of Victoria Harbour, is poised to feature as another iconic landmark upon its completion.
New Territories land
During the period under review, the Group acquired further New Territories land lots of about 0.3 million square feet, increasing its New Territories land reserves to approximately 45.9 million square feet at the end of June 2019. This represents the largest holding among all property developers in Hong Kong.
Of the Group’s land holding of 2.4 million square feet in Fanling North New Development Area, a total land area of roughly over 800,000 square feet is assessed to be eligible for in-situ land exchange and the Government may resume the other parts of its lands for public use by payment of cash compensation. The Group applied for in-situ land exchange for three separate land lots in Fanling North and Kwu Tung North. All have been accepted by the Government for further review. These three land lots in Fanling North are expected to provide an aggregate commercial gross floor area of approximately 440,000 square feet and residential gross floor area of approximately 3.0 million square feet, against their respective site areas of 228,000 square feet, 240,000 square feet and 241,000 square feet. Developable areas for these sites are subject to finalisation of land premium.
According to the aforementioned “North East New Territories New Development Areas Planning and Engineering Study”, the region at Ping Che/Ta Kwu Ling will be re-planned in response to the “2013 Policy Address” which proposed an initiative to review the development potential of New Territories North, including new opportunities brought about by the new railway infrastructure. In January 2014, the Government commenced its “Preliminary Feasibility Study on Developing the New Territories North” on an area of about 5,300 hectares. In September 2014, the Government announced the “Railway Development Strategy”, including its long-term plan to further extend the railway line to Kwu Tung and Ping Che. In order to increase land supply for housing, the Government formulated the Preliminary Outline Development Plan for “Planning and Engineering Study for Housing Sites in Yuen Long South – Investigation” and launched its Stage 2 Community Engagement. It also released the “Land Use Review for Kam Tin South and Pat Heung”. The Group holds certain pieces of land in these areas.
As for the “Hung Shui Kiu New Development Area Planning and Engineering Study”, the area concerned covers an area of about 714 hectares. The Group holds a total land area of approximately 6.47 million square feet in this location. Under the draft Hung Shui Kiu and Ha Tsuen Outline Zoning Plan, it is proposed to accommodate a new town with a population of about 215,000 people and 60,000 additional flats, of which about 50% are private developments. Impacts to the Group arising from these proposals are to be assessed. The Group will continue to work in line with the Government’s development policies and will follow up closely on its development plans.
The Pilot Scheme for Arbitration on Land Premium was introduced by the Government in October 2014 for a trial period of two years, aimed at facilitating the early conclusion of land premium negotiations and expediting land supply for housing and other uses. The Pilot Scheme has been extended to October 2020. The Group will thus consider requesting for arbitration on its land exchange or lease modification cases when necessary.
In order to increase and expedite land supply, the Government announced that the Lands Department would establish a centralised Land Supply Section for speeding up “big ticket” lease modification and land exchange cases and further centralisation of premium assessments, so as to streamline and expedite the development process. The Group will actively work in line with these Government initiatives.
The Government announced that it had fully accepted the recommendations tendered by the Task Force on Land Supply regarding land supply strategy and eight land supply options worthy of priority studies and implementation, which included “Tapping into Private Agricultural Land Reserve in the New Territories”. The Government is in the process of drawing up more specific criteria and other details of the implementation framework for its Land Sharing Pilot Scheme. The Group will look into the matter thoroughly when more details are disclosed.
During the period, the Hong Kong SAR Government proposed to amend the Fugitive Offenders Ordinance in February 2019 and there ensued a series of intensifying protests from 9 June onwards. Daily operations and retail sales of certain shopping malls in Hong Kong were adversely affected.
For the six months ended 30 June 2019, the Group’s attributable share of gross rental income in Hong Kong (including the attributable share of contributions from subsidiaries, associates and joint ventures) increased by 4% period-on-period to HK$3,666 million. The attributable share of pre-tax net rental income (including the attributable contributions from subsidiaries, associates and joint ventures) was HK$2,853 million, representing a growth of 2% over the corresponding period of previous year. Included therein is attributable gross rental income of HK$1,064 million (2018: HK$1,035 million) contributed from the Group’s attributable 40.77% interest in The International Finance Centre (“ifc”) project. At the end of June 2019, the average leasing rate for the Group’s major rental properties was 98%. Besides, there were about 7,500 car parking bays attributable to the Group, providing additional rental income.
Following the completion of the 470,000-square feet “Citygate Outlets” extension in Tung Chung, of which 20% is attributable to the Group, the Group’s completed investment property portfolio in Hong Kong as at 30 June 2019 was enlarged to 8.9 million square feet in attributable terms with its breakdown.
According to the Census and Statistics Department, the value of total retail sales in Hong Kong for the first half in 2019 decreased by 2.6% compared with the same period a year earlier. However, all the Group’s major shopping malls (except those under renovation or undergoing a realignment of tenant mix) were able to record nearly full occupancy at the end of June 2019 with steady rental growth. Such satisfactory results were built on positive attributes of the Group’s shopping malls, including convenient locations, caring customer services and appealing tenant mix. In addition to the regular facility upgrades of its shopping malls, the Group also closely watched the market trends and rolled out innovative promotional activities to attract more shoppers. For instance, by applying “Superflat”, a postmodern art movement founded in Japan, the first-ever crossover decorations of “Hello Kitty x Old Master Q” were presented at “MOSTown” in Ma On Shan during the period under review. “MCP Central” in Tseung Kwan O also hosted the scientific station in Hong Kong, offering a fun and inspiring learning experience for both children and their parents. These creative promotional activities were so well received by shoppers that the respective malls became popular rendezvous. Notwithstanding the stable growth in rental income, total retail sales value dropped at a faster pace in the second quarter of 2019, which gave rise to a decrease in the overall business for shopping malls. The Group will continue to roll out innovative measures and to adjust its tenant mix in a timely manner.
Newly completed in July 2019, “H Zentre” at 15 Middle Road, Tsim Sha Tsui, will soon commence operations. Situated above Tsim Sha Tsui East MTR station, which is just one stop from the Express Rail Link West Kowloon Station, “H Zentre” is a 340,000-square-foot commercial development comprising medical, dining, retail and car parking facilities. Its pre-leasing responses have been satisfactory, with renowned medical service providers, fitness centres and restaurants being secured as its tenants.
Another upcoming addition will be the extension to the Group’s 20%-owned “Citygate Outlets” in Tung Chung, which was completed in March 2019. The entire extension, which comprises a retail area of about 340,000 square feet in seven storeys and a 130,000-square-foot hotel seamlessly connected to the existing “Citygate Outlets”, is planned to open in August 2019. The combined 800,000-square-foot shopping mall will cement its position as Hong Kong’s leading outlet mall given its close proximity to both the airport and Hong Kong-Zhuhai-Macao Bridge.
The Group’s office leasing business continued to advance despite recent slowdown in the economic growth in Hong Kong. During the period under review, the Group’s premium office buildings in Hong Kong Island, such as “ifc” in Central - the core business area, “AIA Tower” in North Point and “FWD Financial Centre” in Sheung Wan, recorded consistently high occupancy with positive rental reversions. Whereas, the office and industrial/office premises in Kowloon East, including “Manulife Financial Centre”, “AIA Financial Centre”, “78 Hung To Road” and “52 Hung To Road”, also performed well with steady rental growth.
The 144,000-square-foot redevelopment project at Electric Road, North Point, was scheduled for completion in the third quarter of 2019. With the commissioning of the Central-Wanchai Bypass in early 2019, it only takes about five minutes to travel from Central to Island Eastern Corridor at North Point. Hence, the pre-leasing responses for this Grade-A office building have been encouraging with keen interest from many co-working space operators and renowned corporations. There are other office developments in the pipeline, including the landmark project at Murray Road, Central, as well as the redevelopment project at Johnston Road, Wanchai, which will in aggregate provide an additional gross floor area of about 530,000 square feet. The Group’s office portfolio is poised to grow further.
The Group has always been committed to building excellence in all its property developments. As part of this pledge, the latest technology and devices are constantly applied in the Group’s construction projects. For instance, apart from the adoption of precast facades and semi-precast slabs, the Construction Department has recently extended the use of prefabricated building components to the bathroom areas of some housing units. With the waterproofing layers and the associated pipe ducts manufactured in a precast factory together with the entire slab of the bathroom area, the water tightness of the bathroom areas has been much improved.
In order to meet the challenges of the local construction industry (such as the ageing workforce and escalating costs) and raise the building quality even further, the Group has been exploring the application of Modular Integrated Construction (MIC) in its future developments of small to mediumsized housing units. This construction method would shorten in-situ construction periods, whilst minimizing the nuisance to neighborhoods. It would also help reduce on-site manpower and construction waste, thereby improving cost efficiency.
The Group’s property management companies, namely, Hang Yick Properties Management Limited, H-Privilege Limited (which provides services for the Group’s urban boutique residences under “The H Collection” brand), Well Born Real Estate Management Limited and Goodwill Management Limited, collectively manage about 80,000 apartments and industrial/commercial units, 10 million square feet of shopping and office space, as well as 20,000 car parking spaces in Hong Kong.
These property management subsidiaries follow the Group’s customer-oriented approach to services. Their professional accreditations, such as ISO 9001 Quality Management System Certification, ISO 10002 Complaints Handling Management System Certification, ISO 14001 Environmental Management System Certification, OHSAS 18001 Occupational Health and Safety Management System Certification and Hong Kong Q-Mark Service Scheme Certification, bear testimony to their dedication to service excellence and customer satisfaction.
During the period under review, their initiative to launch “The Year of Reforms”, and to promote transformation and innovation, helped create an ever-better environment for our customers to live in. By virtue of their meticulous services, these property management companies have established brands well-recognised in the market, gaining wide support and trust from the public. Hence, they received the “Best Corporate Brand of the Year (Property Management)” and “Best Use of Knowledge Management of the Year (Property Management)” from Asia Pacific Customer Service Consortium.
In the first half of 2019, the mainland property market remained steady. The Central Government continued to uphold its directive that “housing should be for living in, not for speculation”. In addition, each city was obliged to adopt differentiated policies and modify its controlling measures in accordance with its own conditions. With various measures to redress both supply and demand, excessive fluctuation in the property market was thus prevented. Although supervision of the financial credit toward real estate sector was strengthened prudently in the first half of this year, an easing of monetary policy still prevailed and mortgage interest rates were lowered in consecutive months during the period under review. The sales of residential properties increased by 8.4% over the same period of last year.
In response to the market conditions, the Group has refined its Mainland China strategy as follows:
Property Investment: The Group focused on the development of Grade-A office buildings. It has been pressing ahead with the development of the 3,000,000-square-foot “Lumina Shanghai” at Xuhui Riverside Development in Shanghai, and the 2,200,000-square-foot “Lumina Guangzhou” at Yuexiu District in Guangzhou. The Group also actively looked for land sites with good prospects at reasonable costs in other prime locations of major cities.
Property Development: The Group kept monitoring residential development opportunities in prime cities, as well as the major second-tier cities and the Greater Bay Area. The Group also continued to strengthen its co-operation with mainland property developers in the joint development of residential projects. The Group’s reputation, management expertise and financial strength, coupled with local developers’ market intelligence, construction efficiency and cost advantages, have enhanced the returns of its development projects.
In line with the above strategies, the Group added the following residential development projects to its land bank during the period under review:
(1) The Group independently won a bid for a residential site in Chaoyang District, Beijing at a consideration of about RMB3,020 million. The land lot with a site area of approximately 420,000 square feet will provide a total gross floor area of about 470,000 square feet.
(2) The Group co-operated with the subsidiaries of CIFI Holdings (Group) Co. Limited (“CIFI”, a property developer listed in Hong Kong) to jointly develop a residential site in Binhu District, Hefei. The Group has a 50% equity interest in this project. The land lot with a site area of approximately 540,000 square feet, and was acquired at a consideration of about RMB1,731 million, will provide a total gross floor area of over 1,280,000 square feet.
In addition to the holding of approximately 0.8 million square feet in attributable gross floor area of completed property stock, the Group held a development land bank in 13 cities at 30 June 2019 with a total attributable gross floor area of about 32.58 million square feet. Around 72% of this total is planned for residential development.
During the period under review, the Group achieved attributable contracted sales of approximately HK$4,338 million in value with a corresponding attributable gross floor area of 2.7 million square feet from various development projects. Main sales projects included “La Botanica” in Xian, “Grand Lakeview” in Yixing, “The Landscape” in Changsha, “Lakeside Mansion” in Beijing, as well as “Xuguan Project” and “Luzhi Project” in Suzhou.
At 30 June 2019, the Group had about 6.4 million square feet of completed investment properties in mainland China. During the period under review, the Group’s attributable gross rental income decreased by 2% period-on-period to HK$923 million, whilst its attributable pre-tax net rental income also decreased by 2% to HK$732 million, mainly attributable to the 6% period-on-period depreciation of Renminbi against the Hong Kong Dollar during the period under review.
In Beijing, “World Financial Centre’’, an International Grade-A office complex in the Chaoyang Central Business District, was about 98% let at the end of June 2019 and recorded steady rental performance.
In Shanghai, “Henderson Metropolitan” near the Bund continued to perform well during the period under review. Many popular eateries were added to this mall so as to enrich the shopping experience of its customers and boost business for its tenants. Due to the early termination of the lease by a major tenant, the office tower of “Henderson 688” at Nanjing Road West recorded a slightly lower leasing rate, which should recover with the take-up of spaces in the short term. The Group is actively looking for new tenants, and beefing up the amenities of the mall to improve its overall attractiveness. In close proximity to Shanghai railway station, “Greentech Tower” was 94% let at the end of June 2019, whilst the leasing rates for its neighbouring “Centro” and “Skycity” were maintained at 90% and 94% respectively despite the construction works at the nearby northern extension of Tianmu Road West. Meanwhile, “Grand Gateway II’’ atop the Xujiahui subway station recorded steady rental performance.
In Guangzhou, the renovation works at “Hengbao Plaza” atop the Changshou Road subway station were partially completed during the period under review. Many new tenants such as educational services providers and a fitness centre were added to cater for the aspirations of younger generations and style-seekers. Meanwhile, more culinary choices will be introduced to satisfy customers’ tastes for novel and diverse cuisine.
In addition, the Group has two sizeable wholly-owned developments, named Lumina, in the pipeline and pre-leasing is currently under way for their first phases.
“Lumina Shanghai” is located at Xu Hui Riverside Development, Shanghai. The 1,800,000-squarefoot Grade A office premises at its Phase 1 Development drew keen leasing interest from many multinational corporations and leading domestic enterprises, which were mainly engaged in professional services, information technology and media industries. The leasing response for its 220,000-square-foot shopping mall was also encouraging, with many eateries and lifestyle brands enquiring. “Lumina Shanghai” Phase 1 is scheduled for completion and opening in mid-2020. Construction of the remaining phase 2 is progressing smoothly. Upon its scheduled completion in 2021, additional office and retail space with a total gross floor area of over 1,000,000 square feet will be provided.
“Lumina Guangzhou” is located in the Yuexiu District of Guangzhou, sitting on the banks of Pearl River with direct connection to two subway lines. The twin Grade-A office towers at its Phase 1 development have been topped out, with internal mechanical and electrical systems being installed. They will provide a total gross floor area nearly 1,000,000 square feet. Many multinational corporations and financial groups have already committed their tenancies, whilst numerous professional firms and renowned trading companies also expressed their interest to become tenants. Meanwhile, a cinema, many renowned eateries and retail brands have been secured as the tenants of its 800,000-square-foot shopping and entertainment mall. More international retail brands, specialty restaurants and a children’s amusement park will be introduced so as to provide customers a multifarious experience of shopping, leisure and entertainment. The office towers and the retail complex of “Lumina Guangzhou” Phase I are scheduled for completion in September and November 2019 respectively. Construction of the remaining phases 2 and 3 is progressing well as planned. Upon their scheduled completion in 2021, they will in aggregate provide an additional retail gross floor area of about 400,000 square feet.
Henderson Investment Limited (“HIL”)
For the six months ended 30 June 2019, HIL’s (unaudited) profit attributable to equity shareholders amounted to HK$21 million, representing a decrease of HK$27 million or 56% from HK$48 million for the corresponding period in 2018.
HIL focuses on department store operations. Currently, it operates six department stores under the name “Citistore”, as well as two department stores-cum-supermarkets through its recently-acquired “Unicorn Stores (HK) Limited” (formerly known as “UNY (HK) Co., Limited”, hereinafter referred to as “UNY HK”) in Hong Kong.
There are six department stores under the name “Citistore” in Hong Kong, of which five are located in the New Territories (in Tsuen Wan, Yuen Long, Ma On Shan, Tuen Mun and Tseung Kwan O) and the remaining one is located in Tai Kok Tsui, Kowloon.
During the period under review, Citistore continued to roll out various initiatives to attract more shoppers and raise the market awareness of its brand. In April 2019, Citistore opened a pop-up store for nearly one month in Mira Place, Tsim Sha Tsui, selling exclusively pet products and organizing workshops for the making of pet accessories. This store also collaborated with an animal welfare organization to launch a dog adoption programme, with the aim to promote adoption of abandoned animals. This event was well received by pet lovers, and aroused extensive publicity from media. The brand awareness of Citistore was thus enhanced.
Sales during the high season before Chinese New Year were affected by the exceptionally warm weather in early 2019, whilst consumer sentiment was subsequently dampened by Sino-US trade disputes and social unrest in Hong Kong. As such, Citistore recorded a period-on-period decrease of 6% in total sales proceeds derived from the sales of own goods, as well as concessionaire and consignment goods, for the six months ended 30 June 2019.
During the period under review, Citistore’s sales of own goods decreased by 4% to HK$209 million with a lower gross margin of 33% (2018: 35%). The Household and Toys category made up approximately 57% of the sales, the Apparels category contributed approximately 28% and the balance of approximately 15% came from the categories of Foods and Cosmetics.
Citistore’s concessionaire sales are conducted by licensing portions of shop spaces to its concessionaires for setting up their own concession counters to sell their products, whilst consignment sales comprise the sales of consignors’ own products on or in designated shelves, areas or spaces. Citistore charges these concessionaire and consignment counters on the basis of revenue sharing or basic commission (if any), whichever is higher, as its commission income. During the period under review, the total commission income derived from these concessionaire and consignment counters decreased by 6% period-on-period to HK$206 million, reflecting the decrease in the sales proceeds generated from both counters.
With the decrease in gross profit of HK$6 million from the sale of own goods, as well as the decrease in commission income from concessionaire and consignment counters in the aggregate amount of HK$13 million, Citistore’s profit after taxation for the period under review decreased by HK$14 million or 30% period-on-period to HK$33 million, despite its relentless efforts in controlling operating costs.
(II) UNY HK
The acquisition of UNY HK was completed on 31 May 2018. PIAGO at Telford Plaza, a lossmaking store included in the acquisition, was closed at the end of March 2019, as originally planned in the course of the acquisition and the post-acquisition integration assessment. Currently, UNY HK operates two department stores-cum-supermarkets in the densely-populated residential districts.
During the period under review, UNY HK generated gross profit (after netting the cost of inventories sold) of HK$133 million against a total sales of own goods of HK$464 million, resulting in a gross margin of 29%. Meanwhile, UNY HK’s sales proceeds from consignment counters, and the commission income arose, amounted to HK$181 million and HK$40 million respectively. After deducting the operating expenses, a loss after taxation of HK$17 million was recorded, mainly due to the rental expenditure in the aggregate amount of HK$22 million incurred on the PIAGO premises after its closure on 31 March 2019.
Aggregating the above-mentioned operating results of Citistore and UNY HK, the total after-tax profit contribution from HIL’s department store operations amounted to HK$16 million for the six months ended 30 June 2019. After taking into account the interest income, dividend income and the overhead expenditures of its head office, HIL’s profit attributable to equity shareholders during the period under review amounted to HK$21 million, representing a decrease of HK$27 million or 56% from that of HK$48 million in the corresponding period of previous year.
Given the ongoing Sino-US trade disputes and social unrest in Hong Kong, consumer sentiment is expected to be weakened. HIL will closely monitor the situation and stay prudent.
HIL will roll out more initiatives to improve the overall shopping environments of its stores. UNY at Lok Fu Place is now undergoing a phased renovation, with the aim to offer a refreshing and comfortable shopping experience for customers. In addition, HIL is integrating the businesses of “Citistore” and “UNY HK”. By sharing of market intelligence and integrating their computer information systems, operational synergies will be achieved. Together with continuous promotional efforts and cost savings measures, HIL’s competitiveness is set to be further improved.
The Hong Kong and China Gas Company Limited (“Hong Kong and China Gas”)
The unaudited profit after taxation attributable to shareholders of Hong Kong and China Gas for the six months ended 30 June 2019 amounted to HK$3,889 million, a decrease of HK$900 million, down by 18.8%, compared to the same period last year. Exclusive of its share of a revaluation surplus from an investment property, the International Finance Centre complex, Hong Kong and China Gas’s profit after taxation amounted to HK$3,752 million, a decrease of HK$211 million, down by 5.3%, compared to the same period last year.
TOWN GAS BUSINESS IN HONG KONG
Total volume of gas sales in Hong Kong for the first half of 2019 was approximately 15,776 million MJ, a decrease of 2.4%, in contrast to a 7.1% increase in the number of appliances sold, both compared to the same period last year. As at 30 June 2019, the number of customers was 1,920,595, an increase of 12,084 since the end of 2018. This company raised its standard gas tariff by HK1.1 cents per MJ on 1 August 2019. The actual increase in the gas tariff (comprising standard tariff and fuel cost adjustment) is equivalent to 4.4%. This company commits to keeping this new standard gas tariff frozen for the next two years.
UTILITY BUSINESSES IN MAINLAND CHINA
As at the end of June 2019, Hong Kong and China Gas held approximately 67.45% of the total issued shares of Towngas China Company Limited (“Towngas China”; stock code: 1083). Towngas China recorded good business growth during the first half of 2019, with profit after taxation attributable to its shareholders amounting to HK$756 million, an increase of approximately 14% compared to the same period last year. Project development has progressed well so far this year with Towngas China adding five new projects to its portfolio, comprising U-Tech (Guang Dong) Engineering Construction Co., Ltd. and four distributed energy projects located in Maanshan Economic and Technological Development Zone South District, Anhui province; in the Chemical Industrial Park, Luanzhou Economic Development Zone, Tangshan city, Hebei province; in the Xinmi Yinji International Tourism Resort, Zhengzhou city, Henan province; and in Shenzhen city, Guangdong province.
Inclusive of Towngas China, Hong Kong and China Gas has a total of 131 city-gas projects in mainland cities spread across 23 provinces, autonomous regions and municipalities. The total volume of gas sales for these projects for the first half of 2019 was approximately 12,940 million cubic metres, an increase of 13% over the same period last year. As at the end of June 2019, its mainland gas customers stood at approximately 28.52 million, an increase of 8% over the same period last year.
Construction of its natural gas storage facility in underground salt caverns in Jintan district, Changzhou city, Jiangsu province, is progressing in phases. This project is the first of its kind built by a city-gas enterprise on the mainland. Phase one involves the construction of 10 wells, with a storage capacity of approximately 460 million standard cubic metres; the first three wells were commissioned at the end of October 2018. During the second quarter of 2019, as initiated by Hong Kong and China Gas, Shanghai Gas (Group) Co., Ltd., a company possessing LNG receiving stations, joined phase one of the project to help facilitate the import of LNG resources from overseas. Phase two, wholly-owned by Hong Kong and China Gas, involves the construction of 12 wells with a storage capacity of 560 million standard cubic metres. Upon completion, total storage capacity of the whole facility will be over 1 billion standard cubic metres.
Hong Kong and China Gas has been in the mainland water market, under the brand name “Hua Yan Water”, for over 13 years and currently invests in, and operates, seven water projects. These include water supply joint venture projects in Wujiang district, Suzhou city, Jiangsu province and in Wuhu city, Anhui province; wholly-owned water supply projects in Zhengpugang Xin Qu, Maanshan city and in Jiangbei Xin Qu, Wuhu city, both in Anhui province; an integrated water supply and wastewater treatment joint venture project, together with an integrated wastewater treatment joint venture project for a special industry, both in Suzhou Industrial Park, Suzhou city, Jiangsu province; and a new water services joint venture project in Foshan city, Guangdong province added in the fourth quarter of 2018 through investment in Foshan Water Environmental Protection Co., Ltd. The major businesses of this latter company encompass tap water supply, wastewater treatment and municipal environmental and sanitary engineering. This is Hong Kong and China Gas’s first water services project located in the Guangdong-Hong Kong-Macao Greater Bay Area. In addition, Hong Kong and China Gas has constructed a plant in Suzhou Industrial Park to handle 500 tonnes daily of food waste, green waste and landfill leachate for conversion into natural gas, oil products, solid fuel and fertilizers under the “Hua Yan Water” brand; trial production formally commenced in mid-February 2019 and is Hong Kong and China Gas’s first project converting municipal environmental and sanitary waste into value-added products.
Overall, inclusive of projects of Towngas China, Hong Kong and China Gas currently has 260 projects on the mainland, six more than at the end of 2018, spread across 26 provinces, autonomous regions and municipalities. These projects encompass upstream, midstream and downstream natural gas sectors, water sectors, efficient energy applications and exploration and utilisation of emerging environmentally-friendly energy, as well as telecommunications.
EMERGING ENVIRONMENTALLY-FRIENDLY ENERGY BUSINESSES
Hong Kong and China Gas’s development of emerging environmentally-friendly energy businesses in mainland China through its wholly-owned subsidiary ECO Environmental Investments Limited and the latter’s subsidiaries (collectively known as “ECO”), is progressing steadily.
ECO’s major businesses in Hong Kong – an aviation fuel facility, dedicated liquefied petroleum gas (“LPG”) vehicular refilling stations and landfill gas utilisation projects – are all operating well. ECO’s aviation fuel facility recorded a total turnover of approximately 3.3 million tonnes of aviation fuel during the first half of 2019, a similar level to the same period last year. ECO’s landfill gas utilisation projects in the North East New Territories and the South East New Territories generate noticeable environmental benefits by avoiding in-situ burning and emission of landfill gas and enabling partial replacement of fossil fuels.
ECO’s coalbed methane liquefaction facility, located in Jincheng city, Shanxi province, is operating smoothly, seeing an increase in the upstream supply of coalbed methane for this facility.
The overall operating environment of ECO’s clean coal chemical project in Ordos city, Inner Mongolia Autonomous Region, worsened noticeably during the first half of 2019 compared to the same period last year due to a significant fall in the selling prices of methanol and ethylene glycol caused by a reversal of the external economic environment.
ECO’s integrated processing project, located in Zhangjiagang city, Jiangsu province, using its selfdeveloped technology to process inedible bio-grease feedstock into hydro-treated vegetable oil (HVO), has produced a total of nearly 20,000 tonnes of HVO, which has gained “International Sustainability and Carbon Certification” (ISCC). On this basis, ECO has commenced phase two of the project to enhance production capacity to 180,000 tonnes per annum.
ECO has commenced construction work relating to a pilot project in Tangshan city, Hebei province, to apply self-developed hydrolysis technology to break down agricultural straw into hemicellulose, cellulose and lignin and to yield furfural and paper pulp. This pilot project is expected to be commissioned by the end of 2019.
ECO’s in-house scientific research, focusing on the extraction of high-quality carbon materials from the pitch portion of high-temperature coal tar oil, has achieved promising results, successfully producing high-quality activated carbon and mesophase pitch. High-quality activated carbon can be used for making super capacitors, whereas mesophase pitch can be used as a raw material for carbon fibre or as an anode material for batteries. ECO’s first pilot project of this kind is now at the preparatory stage; construction work is expected to commence in the second half of 2019.
Hong Kong and China Gas has established research and development centres in Shanghai city and Suzhou city to develop new technologies for agricultural and industrial waste application, including utilisation of inedible grease, straw and coal tar oil. ECO is now establishing production bases in eastern and northern China; gradual commissioning of related projects is expected to start from the end of 2019.
Hong Kong and China Gas’s development of telecommunications businesses in Hong Kong and mainland China through its wholly-owned subsidiary Towngas Telecommunications Company Limited and the latter’s subsidiaries (collectively known as “TGT”), is progressing steadily. In order to facilitate business development on the mainland, TGT and Beijing Ying Tong Technology Co., Ltd. have formed a joint venture, named Ying Tong TGT Network Services (Shenzhen) Co., Ltd., to develop connectivity, data centre and fog computing (small-scale data centre) businesses on the mainland. The synergy effect of this cooperation will help TGT to further expand its business scope on the mainland. In addition, Shenzhen Internet Exchange Co., Ltd., an associated company of TGT, having been granted several value-added telecommunications service licences, has built, and is now operating, a fibre cable network of more than 400 km to provide quality broadband and leased-line services in Shenzhen city.
Hong Kong and China Gas established a medium term note programme in 2009 and the nominal amount of medium term notes issued so far has reached HK$13,900 million with tenors ranging from 3 to 40 years, mainly at fixed interest rates with an average of 3.4% per annum and an average tenor of 15 years. Hong Kong and China Gas updated the programme during the year and increased the issue size by US$1,000 million to US$3,000 million. In January 2014, Hong Kong and China Gas issued its first perpetual subordinated guaranteed capital securities (the “Perpetual Securities”), amounting to US$300 million. These Perpetual Securities were redeemed in January 2019. Hong Kong and China Gas issued new Perpetual Securities again in February 2019 and the proceeds are mainly used to refinance the redeemed US$300 million Perpetual Securities. The newly issued US$300 million Perpetual Securities keep the coupon interest rate at 4.75% per annum for the first five years. The Perpetual Securities are redeemable, at the option of Hong Kong and China Gas, in February 2024 or thereafter every six months on the coupon payment date. This issuance of the Perpetual Securities was rated A3 and BBB+ by international rating agencies Moody’s Investors Service and Standard and Poor’s Rating Services respectively.
Hong Kong Ferry (Holdings) Company Limited (“Hong Kong Ferry”)
During the six months ended 30 June 2019, Hong Kong Ferry’s revenue amounted to HK$170 million, representing a decrease of 82% as compared with the same period last year. Its unaudited consolidated net profit after taxation amounted to HK$86 million, representing a decrease of 68% as compared with a profit of HK$273 million for the same period last year. All its residential units have been sold in 2018. During the period under review, no residential units were sold and its profit was mainly derived from the rental income of the commercial arcades and the profit from the sale of car parking spaces.
Property Development and Investment Operations
During the period, the gross rental income arising from the commercial arcades of Hong Kong Ferry amounted to approximately HK$52 million. At the end of the reporting period, the commercial arcades of Shining Heights, The Spectacle and Metro6 were fully let, whereas the occupancy rate of the commercial arcade of Green Code was 92%. As the commercial arcade of the Metro Harbour Plaza has been partly under renovation, the occupancy rate was 80%. The profit arising from the sale of the car parking spaces amounted to approximately HK$19 million.
In June 2018, Hong Kong Ferry was awarded the contract of Tung Chau Street/Kweilin Street redevelopment project in Sham Shui Po by the Urban Renewal Authority at a consideration of HK$1,029.2 million. Hong Kong Ferry is responsible for the construction of the project with a total gross floor area of about 144,345 square feet. Upon redevelopment, Hong Kong Ferry will be entitled to the residential gross floor area of about 97,845 square feet and the project is expected to be completed in late 2022.
Tuen Mun Town Lot No. 547
The construction of Hong Kong Ferry’s 50%/50% joint venture project with Empire Development Hong Kong (BVI) Limited located at Castle Peak Road, Castle Peak Bay, Area 48, Tuen Mun, New Territories (Tuen Mun Town Lot No. 547) is in good progress and is expected to be completed in 2022. The project under construction consists of six residential towers providing about 1,636 units with sea view or landscape view. The total gross floor area of the project is about 663,000 square feet.
Ferry, Shipyard and Related Operations
During the period, the Ferry, Shipyard and Related Operations recorded a profit of HK$3.7 million, a decrease of 49% as compared to the same period last year. The decrease was mainly due to lower vessel repair businesses after the opening of the Hong Kong-Zhuhai-Macao Bridge.
A profit of HK$12 million was recorded in its securities investment during the period.
Barring unforeseen circumstances, the rental income from the commercial arcades will be the main source of income of Hong Kong Ferry for the second half year. In addition, the Tung Chau Street/Kweilin Street project and the Tuen Mun project will be sold by phases commencing next year.
Miramar Hotel and Investment Company, Limited (“Miramar”)
Miramar’s revenue for the six months ended 30 June 2019 amounted to approximately HK$1,586 million, similar to the last corresponding period (2018: HK$1,600 million). Profit attributable to shareholders for the reporting period decreased by 10.1% to HK$770 million (2018: HK$856 million). Excluding the net increase of HK$350 million in the fair value of the investment properties and other net gain from non-core businesses, the underlying profit attributable to shareholders increased by 3.4% to approximately HK$420 million (2018: HK$406 million).
Hotels and Serviced Apartments Business
During the reporting period, revenue from hotels and serviced apartments business decreased by 3.5% to HK$330 million while EBITDA (earnings before interest and taxes, depreciation and amortisation) declined 8.6% to HK$119 million, compared to the last corresponding period. Occupancy rates of The Mira Hong Kong and Mira Moon Hotel remained stable at over 90% in the first six months, whilst the average room rate for available rooms maintained at similar levels as in the last corresponding period.
Property Rental Business
Revenue from property rental business was HK$462 million, with EBITDA amounting to HK$409 million, representing steady rises of 1.0% and 0.6% respectively compared with the last corresponding period. Further to the launch of the Mira Place mobile application in 2017, Miramar launched Hong Kong’s first new smart parking solution for shopping mall “e-PARKING”, which has simplified the parking process and take customer experience to the next level, and won the Silver Award of the Hong Kong ICT Awards 2019 ─ Smart Mobility Award (Smart Transportation). Total book value of the investment properties amounted to over HK$15,200 million.
Food and Beverage Business
Revenue from food and beverage business recorded approximately HK$137 million, while EBITDA was approximately HK$15 million, representing a drop of 16.3% and an increase of 452.2% respectively over the last corresponding period.
Revenue from travel business was HK$657 million, 3.2% up from the last corresponding period. EBITDA recorded approximately HK$44 million, an increase of 48.1% compared to the same period of last year.
Operating and Other expenses
The overall operating costs of Miramar during the reporting period was HK$108 million, similar to the same period last year (2018: HK$107 million).
Business Outlook - For the six months ended June 30, 2019
The softening global economic growth, as well as Sino-US trade and technology disputes, have affected the Hong Kong economy. GDP in the first half of 2019 expanded by only 0.5% in real terms over a year earlier. In February 2019, the Hong Kong SAR Government proposed to amend the Fugitive Offenders Ordinance and a series of intensifying protests ensued from 9 June onwards. Although the Government announced that it would not proceed with the proposed amendments, conflict in the community has continued to escalate, taking a further toll on the economy. Various industries from tourism, retail to food and beverage were hard hit. Rental returns and market values of Hong Kong’s properties were affected. However, limited near-term housing supply and a low mortgage interest rate, should continue to lend support to the local property market. The Group hopes that Hong Kong will soon return to normal and refocus itself on driving social and economic progress, so that citizens can continue to live and work in peace. The Group will closely monitor the situation, assess the risks, and take appropriate measures.
During the period under review, the Group continued to replenish its development land bank in Hong Kong through diversified means and encouraging progress was achieved: (1) Two residential sites in Kai Tak Development Area were secured jointly with other developers, adding an aggregate gross floor area of over 0.3 million square feet in attributable terms to its land bank; and (2) The Group acquired further New Territories land lots of about 0.3 million square feet, increasing its land reserves in the New Territories to approximately 45.9 million square feet, which represents the largest holding among all property developers in Hong Kong. Turning to mainland China, a development project was secured in Beijing and Hefei respectively, adding an aggregate gross floor area of about 1.1 million square feet in attributable terms to the Group’s land bank. With multiple channels of land bank replenishment, the Group has managed to secure a stable supply of land resources for property development over the long term, enabling the sustainable growth of its property sales business.
As regards “property sales”, three development projects are in the pipeline for sale launch in the second half of this year. Together with unsold stocks, a total of about 1,400 residential units and 250,000 square feet of industrial/office space in Hong Kong will be available for sale in the second half of 2019. As at the end of June 2019, cumulative proceeds from the sales of Hong Kong properties, but not yet accounted for, amounted to approximately HK$21,521 million in attributable terms. In addition, the Group entered into an agreement in July 2019 to sell its equity interest in the company holding Wo Shang Wai project for a consideration of HK$4,705 million (subject to adjustments). The profit arising from the sale may be accounted for in or before January 2020 upon completion of the transaction.
Turning to mainland China, the Central Government’s directive that “housing should be for living in, not for speculation” is expected to remain unchanged so as to ensure steady development of the property market. In the implementation of differentiated policies, local governments are held primarily responsible for stabilising their land and property prices. The Group will continue to look for investment opportunities in the first-tier cities, as well as the major second-tier cities and the Greater Bay Area. In addition, the Group will strengthen co-operation with local property developers. As regards property sales, cumulative proceeds from sales, but not yet accounted for, amounted to approximately HK$8,264 million in attributable terms as at the end of June 2019.
As regards “rental business”, the successive completion or opening of various developments in the second half of 2019 (including “H Zentre” at Middle Road, the office redevelopment project at Electric Road and the “Citygate Outlets” extension in Tung Chung, all in Hong Kong, as well as “Lumina Guangzhou” Phase I in Haizhu Square of mainland China) will expand the Group’s rental portfolio to 9.4 million and 8.2 million square feet in attributable gross floor area, respectively, in Hong Kong and on the mainland at the end of 2019. Together with other landmark projects in the pipeline, including the office development at Murray Road in Hong Kong as well as “Lumina Shanghai” in Xu Hui Riverside Area of mainland China, the Group’s rental portfolio will grow further with a more optimal composition.
The “associates”, namely, Hong Kong and China Gas, Miramar and Hong Kong Ferry, serve as another steady recurrent income stream to the Group. Hong Kong and China Gas, in particular, has 260 projects on the mainland, spread across 26 provinces, autonomous regions and municipalities.
With a total of over 30 million piped-gas customers in Hong Kong and mainland China, as well as its expanding scope of businesses, its contributions to the Group are promising. With the above three major business pillars (namely, “property sales”, “rental business” and “associates”), strong balance sheet and seasoned management team, the Group is well-placed to tackle challenges ahead. Barring unforeseen circumstances, operational performance of the Group is expected to be stable for the current financial year.
Source: Henderson Land Dev (00012) Interim Results Announcement