Principal activities are property development; property investment for rental purposes; and manufacturing and trading of garments.
The Group's loss attributable to shareholders for the year ended 31-03-2020 amounted to HKD 45.42 million. Basic loss per share was HKD 0.0824. A final dividend of HKD 0.05 per share was declared. Turnover amounted to HKD 639.4 million, a decrease of 57.3% over the same period last year, gross profit margin up 9.4% to 58.8%. (Announcement Date: 26 Jun 2020)
Business Review - For the year ended March 31, 2020
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 revenue of HK$638 million (2019: HK$1,478 million) and net loss attributable to its shareholders of HK$36 million (2019: net profit of HK$1,159 million) for the financial year 2019/20. The decline in revenue was in part due to the cyclical drop in property sales from the Group’s development projects. For example, last year’s major project, the Botanica in Guangzhou was completed with most of the revenue already recognised in prior years. On top of which, the turning of net profit into net loss was due to reappraisals resulting in fair value losses in investment properties at year end.
Property Development and Investment – Mainland China
The Botanica 寶翠園, situated in the greenery zone of Tian He District near the Botanical Garden, comprises 39 blocks of high-rise residential buildings. This development project, with a total gross floor area of approximately 229,000 sq.m., was completed in 2016 with nearly all residential units sold out and recognised as revenue in prior years. For the year ended 31 March 2020, the Group recognised revenue of HK$132 million (2019: HK$1,035 million) from the delivery of the remaining units of the final phase to customers.
Ganghui Dasha 港匯大廈, a 20-storey commercial/office building, is situated at the junction of Beijing Road, Nanti Er Road and Baqi Er Road, Yue Xiu District. The average occupancy rate of the building was about 85%.
45-107 Beijing Nan Road is a development site adjacent to the Group’s former projects, No. 5 Residence, and Ganghui Dasha. The site is close to the Beijing Road Pedestrian Street, a famous shopping district in Guangzhou, and includes a 30-storey commercial/residential building and a 32-storey commercial/office building. The residential units of the project are planned for pre-sale in the financial year 2021/2022 whereas the office portion will be held for recurring rental income. Foundation works are now in progress. After completion, together with previous development projects, there will have four blocks of buildings forming a property complex with office, commercial and residential components along Beijing Road, representing a significant development footprint of the Group in Guangzhou.
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., was developed in phases. For the year ended 31 March 2020, the Group recorded revenue of HK$193 million (2019: HK$189 million) from the units of phase 1 and phase 2 delivered during the year. Phase 3 of the project, comprising 19 blocks of high rise apartments of approximately 550 units, is scheduled for completion in 2020. Some units of phase 3 have been launched to the market for pre-sale. As at 31 March 2020, the contracted property sales but not yet booked amounted to RMB884 million.
Hon Kwok City Commercial Centre 漢國城市商業中心, the Group’s investment property, with a total gross floor area of approximately 128,000 sq.m., is situated at the junction of Shen Nan Zhong Road and Fu Ming Road, in the core area of Futian District of Shenzhen. This signature 75-storey high commercial/office tower above ground with 5-level basement, offers high-quality Grade A office and retail space. The building development was completed in 2018 and delivered for leasing/occupation in the second half of 2019. As at 31 March 2020, the occupancy rate of the retail portion was 64%, while the offices were 24% leased. Overall occupancy rate reached around 30%.
City Square 城市天地廣場, situated at Jia Bin Road, Luo Hu District, is a 5-storey commercial podium. The leasing of the retail shops at ground level and the entire first floor of the podium are satisfactory. With the outbreak of COVID-19, the rental performance of hotel industry was directly hit during the first quarter of 2020, The Bauhinia Hotel (Shenzhen) 寶軒酒店（深圳）, a 162-room hotel at upper three floors of the above podium, experienced a drastic drop in occupancy and room rates, whilst, the average occupancy rate of City Suites 寶軒公寓, a 64-unit serviced apartment on top of the podium was stable and remained over 90%.
Enterprise Square 僑城坊, in which Hon Kwok Group owns a 20% interest, is situated at Qiaoxiang Road North, Nanshan District, covering a site area of approximately 49,000 sq.m. and a total gross floor area of approximately 224,500 sq.m. It was developed into a commercial complex comprised 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 2018. Part of office towers and the residential apartment tower have been launched to the market for sale. For the year ended 31 March 2020, property sales realised revenue of RMB1,497 milion (2019: RMB1,884 million) from the units delivered during the year. As at 31 March 2020, the property sales contracted but revenue not yet booked amounted to RMB147 million. Net profit attributable to Hon Kwok Group in respect of Enterprise Square, including a decrease in fair value of the commercial mall and an office tower which are classified as investment properties, amounted to HK$110 million (2019: HK$317 million) for the year ended 31 March 2020.
Chongqing Hon Kwok Centre 重慶漢國中心, situated at Bei Bu Xin Qu, is a 21-storey twin-tower office building atop of a 4-storey retail/commercial podium achieved average occupancy rate of 94%.
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 office tower and a 42-storey hotel and office composite tower each with its respective 4-storey retail/commercial podium. The occupancy rate of the office tower increased steadily up to 82% as at 31 March 2020, while the occupancy rate of the hotel/office tower went up to 62%.
Property Investment – Hong Kong
The Group’s newly completed data centre, with a total gross floor area of approximately 228,000 sq.ft., is situated at Kin Chuen Street, Kwai Chung, New Territories. This building, which is 14-storey high above ground with a 2-level basement, was developed into a data centre. Construction works had been completed in mid 2020. The move is a milestone for the Group, expanding its capability to develop special-purpose properties with highly building requirements for enterprise customers. Following the issue of the occupation permit in the coming month, the entire building is being leased out to a leading global data centre operator at satisfactory rental rates under a long term lease. It will generate a steady stream of recurrent income starting from financial year 2020/2021.
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 was about 85% whilst that of The Bauhinia 寶軒, a 171-room serviced apartment atop of the above hotel, was about 83%. The retail shops at street level of the aforesaid building are fully let.
The average occupancy rate of The Bauhinia Hotel (TST) 寶軒酒店（尖沙咀）, a 98-room boutique hotel occupying a total of 20 floors of a 23-storey commercial/office building at Observatory Court, Tsim Sha Tsui, was about 62%. The remaining floors of the above building are for leasing as restaurant/commercial use.
The impact of local social unrest and the COVID-19 pandemic weighed heavily on the hotel industry in Hong Kong. The occupancy and room rates dropped drastically in early 2020. To cope with the difficulties, our Group’s hotel business imposed cost control and offered attractive packages to customers, occupancy rates of our hotels remained at 40% as at 31 March 2020, slightly better than the market average.
The average 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 was about 88%, delivering a stable rental income.
Property, carpark management and others
For the year ended 31 March 2020, the property and carpark management division reported revenue of HK$31.9 million compared with HK$32.4 million in 2019. Under the adverse impact from the local social unrest in 2019, coupled with the outbreak of COVID-19 pandemic in early 2020, operating profit dropped significantly. The local government, in support of car park operators, provided 50% rental concessions for six months to tenants operating the fee-paying public car parks. This helped to reduce our operating costs. As at 31 March 2020, the Group managed 11 car parks (31 March 2019: 11 car parks) with 2,100 parking spaces (31 March 2019: 2,000 parking spaces).
2. Property under redevelopment plan
The parcel of land in Zhongtang District of Dongguan in Mainland China, where the Group’s garment factory was situated prior to its cessation of operation, covers a site area of approximately 19,000 square meters and a gross floor area of approximately 58,000 square meters. Approval was obtained from the Chinese government authority for redeveloping the land from industrial use into a commercial/residential project. Construction works are scheduled to commence in the third quarter of 2020.
3. Construction and Trading
Chinney Alliance Group Limited (“Chinney Alliance”) (Stock Code: 385), a 29.1% owned associate recorded revenue of HK$5,220 million (2018: HK$6,048 million) and net profit attributable to its shareholders of HK$131.0 million (2018: HK$195.9 million) for the year ended 31 December 2019.
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 The Stock Exchange of Hong Kong Limited. Chinney Kin Wing contributed revenue of HK$1,304 million (2018: HK$1,243 million) and operating profit of HK$68.1 million (2018: HK$68.7 million). The increase in revenue was attributable to the increase in revenue contributed from DrilTech, the drilling and site investigation division whereas the revenue contributed from foundation construction remained stable. Under the prevailing weak and competitive market condition, contract prices were squeezed, while labour and material costs were rising, thus, profit margin dropped slightly. Nevertheless, the division continued to sharpen its competitive edge in the market by strengthening the project teams as well as enhancing its plant and machinery.
The building construction division, consisting mainly of Chinney Construction Company, Limited (“Chinney Construction”) and Chinney Timwill Construction (Macau) Company Limited, engaged in superstructure construction works, contributed revenue of HK$1,126 million (2018: HK$1,497 million) and operating profit of HK$56.8 million (2018: HK$79.2 million). As the major projects in progress were substantially completed during the year with the revenue recognised being less than that in the previous year, revenue and profit contribution for the year under review slightly declined. The awarding of new projects were also delayed by social unrest and COVID-19 mitigation measures. Nevertheless, the division continues to actively seek opportunities in Hong Kong and Macau.
The building related contracting services division, consists of Shun Cheong Investments Limited and its subsidiaries, engaged in its core HVAC, water, electrical and fire safety services businesses, recorded revenue of HK$2,211 million (2018: HK$2,668 million) and operating profit of HK$87.8 million (2018: HK$122.9 million). Owing to the gradual completion of major projects during the year under review whilst new contracts were only progressing at their early stage, revenue and profit margin recognised were reduced. Moreover, to cope with its development plan, the division had expanded its labour force, causing an increase in overheads.
The plastic trading division, consists of Jacobson van den Berg (Hong Kong) Limited, contributed revenue of HK$482 million (2018: HK$610 million) and operating loss of HK$0.5 million (2018: operating profit of HK$5.8 million). Under the softened business environment caused by the on-going US-China trade tension and exchange rate fluctuations, customers were cautious about the selling prices, thus, profit margins were hit, resulting in a slight operating loss reported for the year under review. Nonetheless, the division continues to develop diversified products, including the disinfectant product “JcoNAT” to enhance its profitability.
Business Outlook - For the year ended March 31, 2020
Under the triple whammy of trade tensions, social unrest, and a pandemic, 2019-2020 was one of the most challenging economic years in our Group’s history. The precautionary measures adopted to contain the spread of virus caused disruptions to supply chains and normal business operations, resulting in a sharp contraction in global economic activity. In spite of the easing measures offered by various Government Policies such as the US Federal cut interest rates, the business environment remains clouded with uncertainties in the short term.
In 2019, the property market in Mainland China maintained a moderate growth rate amid the on-going US-China trade disputes and softening market sentiment. Under the Chinese government’s city-specific housing policies and tight control over financing activities, housing prices stabilised. While the signing of Phase-One trade agreement with the US in January 2020 slightly lifted market uncertainties, the sudden outbreak of COVID-19 across the Mainland crashed the economy, leading to a steep economic contraction in the first quarter of 2020. Nevertheless, in light of the solid demand in the Mainland property market, together with the belief that the Chinese government will endeavour to develop a stable and healthy real estate market, we will see positive growth in the long term.
In Hong Kong, the impact from coronavirus outbreak, social unrest and external volatility weighed heavily on the local economy, affecting all business sectors, resulting in a deep downturn in economic activity through the first quarter of 2020. In particular, the retailing, catering and hotel sectors were badly hit due to the decline in inbound tourism. Our Group’s hotel occupancy rates have plummeted. To mitigate the negative impact of pandemic and forestall further deterioration in the labour market, the local Government introduced stimulus measures by means of an Anti-epidemic Fund to support business sectors. Looking ahead, as the impact of the pandemic has yet to be fully reflected, Hong Kong’s economy will be subject to more challenges in the near future.
Source: Chinney Investment (00216) Annual Results Announcement