Principally engaged in property development, property investment and property related activities.
The Group's profit attributable to shareholders for the 6 months ended 30-09-2020 amounted to HKD 91.74 million, a decrease of 59.1% compared with previous corresponding period. Basic earnings per share was HKD 0.1273. No dividend declared. Turnover amounted to HKD 749.4 million, an increase of 100.0% over the same period last year, gross profit margin down 26.6% to 43.8%. (Announcement Date: 26 Nov 2020)
Business Review - For the six months ended September 30, 2020
(i) Property Development
For the six months ended 30 September 2020, the property development segment revenue was HK$609 million compared with HK$218 million in 2019. Segment profit before taxation was HK$229 million compared with HK$163 million in 2019. The revenue and profit for the current period were mainly contributed from the delivery of sold units in Metropolitan Oasis.
The Group's property development projects are located in Mainland China comprising mainly (i) Metropolitan Oasis, the Group's wholly owned project in the Da Li District of Nanhai; (ii) 45-107 Beijing Nan Road, the Group's wholly owned project in the Yue Xiu District of Guangzhou and (iii) Enterprise Square in the Nanshan District of Shenzhen in which the Group owns 20% interest.
Metropolitan Oasis with a total gross floor area of approximately 273,000 square meters was developed in phases. Phase 1 and Phase 2 of the development project have been completed. Phase 3 of the project, comprising 19 blocks of high rise apartments of approximately 550 units, is scheduled for completing its internal finishing works by the end of 2020. Some units of Phase 3 were launched to the market for sale/pre-sale. For the six months ended 30 September 2020, the Group booked revenue of HK$609 million (2019: HK$121 million) from the units of Phase 2 and Phase 3 delivered during the period. As at 30 September 2020, the contracted property sales but not yet booked amounted to RMB602 million.
The site at 45-107 Beijing Nan Road, which is close to the Beijing Road Pedestrian Street and the Pearl River, is a development site adjacent to the Group's former projects, No. 5 Residence, and Ganghui Dasha. The project is designated for mixed-use development, including a 30-storey residential building and a 32-storey commercial/office building. The residential units of the project are for sale whereas the office portion will be held for recurring rental income. Foundation works are expected to be completed in 2021. After completion of the project, together with previous development projects, there will be four blocks of building forming a property complex along the Beijing Road, representing a landmark of the Group in Guangzhou.
Enterprise Square, of which the Group owns a 20% interest, situated at Qiaoxiang Road North, Nanshan District, has a total gross floor area of approximately 224,500 square meters. This mixed-use commercial complex comprises office towers, a residential apartment and a shopping mall. Development of the entire project was completed in June 2018. Apart from an office tower and the shopping mall that are held for leasing purpose, the other office towers and the residential apartment units were launched to the market for sale in prior years. For the six months ended 30 September 2020, the project recognised revenue of RMB229 million (2019:RMB1,394 million) from the units delivered during the period. As at 30 September 2020, the contracted property sales but not yet booked amounted to RMB97 million.Net profit attributable to the Group in respect of its interest in Enterprise Square, including the decrease in fair value of the investment properties, amounted to HK$37 million (2019: HK$88 million) for the six months ended 30 September 2020.
The Botanica in the Tian He District of Guangzhou in which the Group owns 60% interest was completed with all residential units sold out in prior years. No revenue was recorded for the six months ended 30 September 2020 (2019: HK$97 million).
(ii) Property Investment
For the six months ended 30 September 2020, the property investment segment revenue was HK$127 million compared with HK$140 million posted for the same period in 2019. Segment profit before taxation was HK$68 million compared with HK$191 million in 2019. Excluding the change in fair value of investment properties, segment profit before taxation was HK$56 million compared with HK$78 million in 2019. Since the outbreak of COVID-19 pandemic in early 2020, economic activities were broadly disrupted, in particular, the hotel operations were seriously hit under travel restrictions. To support our tenants, short-term rental concessions were offered to individual tenants. As business activities were halted over a period of time, the rental performance of the Group's portfolio of completed investment properties were slightly affected and resulted in a decline in net rental income.
Property Investment–Hong Kong
To strengthen our property portfolio to generate recurrent rental income, the Group holds a portfolio of different types of properties, including office, hotel property and data centre. The Group's completed investment property portfolio in Hong Kong with an aggregate gross floor area of approximately 474,000 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; (iii) The Bauhinia Hotel (TST), a hotel property at Observatory Court, Tsim Sha Tsui; and (iv) Data Centre at Kin Chuen Street, Kwai Chung. Average occupancy of the properties achieved 72% for the six months ended 30 September 2020 (2019: 85%). During the period under review, rental income of the hotel properties declined owing to the negative impact of cross-border travel restrictions and precautionary measures due to COVID-19 pandemic.
The newly completed data centre at Kin Chuen Street, Kwai Chung, providing a gross floor area of approximately 228,000 square feet, obtained the Occupation Permit in June 2020. Leasing of the building to a leading global data centre operator has commenced and will start generating rental income in 2021.
Property Investment–Mainland China
The Group's completed investment property portfolio in Mainland China with an aggregate gross floor area of approximately 446,000 square meters comprises (i) Hon Kwok City Commercial Centre, a commercial/office building at the Fu Tian 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, including Hon Kwok City Commercial Centre which commenced leasing in 2019, achieved an average occupancy of 63% for the six months ended 30 September 2020 (2019: 74%).
The occupancy of Hon Kwok City Commercial Centre grew steadily over the period under review. The occupancy rate of the retail portion was 69%, whereas the offices space was 42% leased. Overall occupancy rate reached 46% as at 30 September 2020.
The Group's investment property portfolio was measured on a fair value basis, valued at HK$14,630 million as at 30 September 2020 (as at 31 March 2020: HK$14,328 million). After netting off the additions to investment properties and the exchange gain arising from appreciation in Renminbi during the period, the increase in fair value of the Group's investment properties amounted to HK$12 million (2019: HK$113 million) for the six months ended 30 September 2020.
(iii) Property and carpark management
For the six months ended 30 September 2020, the property and carpark management segment revenue was HK$14 million compared with HK$17 million in the same period of 2019. Under the adverse impact of COVID-19 pandemic, revenue and profit dropped significantly. However, the government offered rental concessions of 75% and other subsidies to support the carpark operators, thus operating cost was substantially reduced, resulting in segment profit before taxation of HK$5.3 million compared with HK$0.3 million in 2019. As at 30 September 2020, the Group managed 7 carparks (31 March 2020: 11 carparks) with approximately 1,940 parking spaces (as at 31 March 2020: 2,100 parking spaces).
Business Outlook - For the six months ended September 30, 2020
The COVID-19 pandemic continues to distort our business activities. From suspensions of business to severe border crossing restrictions, Governments measures to control the outbreak have negatively affected multiple business models. These pressures come on top of already intense trade and geopolitical risks left over from the previous year. Making the current trading conditions the most challenging in a generation.
While Governments have implemented a series of accommodative easing policies to alleviate more serious adverse outcomes, and news of vaccines appear promising, stagnant market conditions are likely to persist into the near future.
On the Mainland, GDP growth stood at 3.2% in the second quarter of 2020, signifying a quick turnaround after the pandemic. To further boost the domestic demand and to support the business sector, the PRC government introduced monetary and fiscal policies while maintaining stability of residential property market. However, the leasing market weakened due to corporations deferring expansion or removal plans, and the necessity of providing temporary rental concessions to existing tenants. Nevertheless, in view of the strong housing demand in the Mainland real estate market, we remain cautiously optimistic on its prospects and expect a steady and healthy growth in the property market in the long run.
In Hong Kong, the GDP fell 3.5% from a year earlier in the third quarter of 2020, with the unemployment rate climbing to 6.4% in September 2020. The Hong Kong economy continues to reel under the triple hammers of the pandemic, international trade tensions, and the disappearance of tourists. Nevertheless, the local residential property market remained firm thanks to prevailing low interest rates and strong end-user demand.Together with the supportive measures implemented by the local government such as the raising of the mortgage cap under the new mortgage insurance, we maintain a cautiously positive outlook in the property market.
All in all, as the consequential impact of the pandemic has yet to be fully reflected, we will stay vigilant and remain cautious while grasping investment opportunities at appropriate time.
Source: Hon Kwok Land Inv (00160) Interim Results Announcement