Financial Statement Announcement for 2nd Quarter ended 30 June 2017
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Profit & Loss
Review of Performance
Statement of Comprehensive Income
Due to the nature of the industry that the Company operates in, recognition of revenue from the sale of properties is driven by project hand‐over. Consequently, quarterly results may not be a good indication of profitability trend.
For the six months and quarter ended 30 June 2017
Revenue of the Group from the Sale of Properties increased by RMB74.1 million (63.8%) to RMB190.1 million as compared with 2QFY2016. The increase was mainly driven by the continued handover of the residential units at San Ya Wan Phase 2 project and commercial units at Ying Li International Electrical and Hardware Centre ("Ying Li IEC") Phase 1A and 2A, and sales of Investment properties.
Rental income increased marginally by RMB0.3 million (0.5%) as compared to the same period of last year.
Gross profit of the Group for 2QFY2017 decreased by RMB2.4 million (3.5%) to RMB66.2 million as compared to the same period last year. The mix of properties that were handed over in 2QFY2017 have lower gross profit as compared to the commercial units at San Ya Wan Phase 2 handed over in 2QFY2016.
Gross profit margin
The Group's gross profit margin for 2QFY2017 decreased by 13.3 percentage points to 27.2%. Gross profit margin from Sale of Properties decreased as the mixture of properties that were handed over in 2QFY2017 tend to have lower gross profit margin as compared to the residential units at San Ya Wan Phase 2 handed over in 2QFY2016, including sales of Investment properties in 2QFY2017 where its carrying value had been revalued to fair market value. This had also contributed to the lower Group's gross profit margin from Sale of Properties in 2QFY2017
The year‐on‐year decrease in Other Income was mainly due to lower interest income.
Selling expenses decreased marginally by RMB4.5 million (24.8%) in 2QFY2017 to RMB13.5 million as compared to 2QFY2016, due to lower staff costs, sales and marketing related expenses.
During the quarter under review, Administrative expenses increased slightly by RMB1.5 million (5.8%) to RMB28.3 million in 2QFY2017 mainly due to additional advisory service fees incurred during the quarter.
For the quarter under review, Finance costs were RMB0.2 million (0.8%) lower as compared to 2QFY2016 mainly due to the gradual repayment of outstanding loan. Interest expense directly attributable to projects would generally be capitalised as part of the project costs.
During the quarter under review, tax expense decreased by RMB1.9 million (30.8%) as compared with 2Q2016 mainly due to lower taxable profits generated from the sale of properties in 2QFY2017.
Total comprehensive loss for the period
Total comprehensive income for the period increased by RMB18.6 million as compared to 2QFY2016. The increase is mainly due to higher foreign currency translation gains due to the slight strengthened in the RMB against SGD during the quarter.
Profit attributable to ordinary shareholders of the Company
Overall, net profit attributable to the ordinary shareholders of the Company increased marginally in 2QFY2017.
Statement of Financial Position
Total Assets of the Group decreased by RMB283.1 million to RMB11.6 billion during the quarter mainly due to a decrease in cash and cash equivalents of RMB268.3 million mainly due to the repayment of loans, progress payments for the construction of the projects and distribution on perpetual convertible securities.
The Group's total liabilities decreased by RMB240.3 million to RMB6.6 billion during the period under review. The decrease in liabilities was mainly due to reduction in borrowings amounting to RMB112.1 million due to repayment of loans and a decrease in trade and other payables of RMB113.9 million that was mainly attributable to a decrease in advances received from customers as the units are handed over and the progress payment of construction costs.
The Group's total equity decreased by RMB42.9 million to RMB5.02 billion during the period under review, mainly due to a decrease in the Exchange fluctuation reserve because of RMB devaluation in 1HFY2017. The Exchange fluctuation reserve mainly comprises cumulative unrealised exchange gains/losses arising from the translation of the financial statements of the entities where the functional currency differs from the presentation currency which is the Chinese Yuan ("RMB").
Statement of Cash Flow
The decrease in unrestricted cash and cash equivalent of RMB37.7 million for the quarter under review was mainly due to:
- net cash outflow of RMB49.3 million from operating activities; and
- net cash inflow of RMB87.2 million from financing activities.
The net cash outflow from operating activities of RMB49.3 million was mainly attributable to cash generated from operating profit of RMB28.3 million This was off‐set by i) a decrease in trade and other payables of RMB14.8million mainly due to the payment made to suppliers and lower advance payment from customers; ii) an increase in trade and other receivables amounting to RMB74.9 million due to additional prepayment and amount on deposits for land tender; and iii) net interest and income tax paid of RMB50.3 million.
Net cash from financing activities of RMB87.2 million includes: (i) increase in borrowings of RMB250.0 million to fund the construction of the Group's ongoing projects; (ii) release of cash collaterals pledged to financial institutions upon the repayment of loans. This was off‐set by the repayment of borrowings and distribution of perpetual convertible securities amounting to RMB332.7 million.
Commentary On Current Year Prospects
According to Chongqing Statistics Bureau, Chongqing posted a GDP growth of 10.5% Y‐o‐Y to RMB914.4 billion in 1H2017, outpacing the country's overall GDP growth of 6.9% Y‐o‐Y and upholding its position as the fastest‐growing city in the People's Republic of China ("PRC"). In tandem, disposable income per capita rose by 8.6% Y‐o‐Y to RMB16,913 while total retail sales of consumer goods expanded by 11.7% Y‐o‐Y to RMB391.4 billion in 1H2017.
Chongqing Office Market
In 1H2017, office demand picked up with the increase in net absorption by 131.2% Y‐o‐Y to 231,400 sqm, driven by the finance and professional services sectors. The five districts of Jiefangbei, Jiangbeizui, Xinpaifang, Hualongqiao and Yangjiaping accounted for more than 90% of the total net absorption based on lettable floor area. As a testament to its prime location and the preferred choice for MNCs, Jiefangbei recorded the lowest vacancy rate in 1H2017 albeit at the highest rental of above RMB100 per sqm per month for its Grade A office amongst these five district. With the pickup in office demand, overall vacancy rate registered a slight improvement despite seven new office projects totaling 372,800 sqm concentrated in Jiangbeizui and Hualongqiao districts entering the market in 1H2017.
(Source: JLL Research, 1H17 Chongqing Property Market At‐a‐glance)
Chongqing Retail Market
In 1H2017, retail areas in core business district registered a sharp increase in net absorption areas of 13,200 sqm, a 119.0% y‐o‐y growth although a total new supply of 93,300 sqm was introduced within the core business district. As the retail market is experiencing an adjustment phase with repositioning and tenant‐mix adjustments, vacancy rate in core business districts dropped slightly by 2.3 percentage points to 17.7% in 1H2017. Notwithstanding the current transition phase, apparel and F&B outlets remained as the key drivers of demand. Unique concept F&B outlets and those with good online reviews are consumers' preferred choice for dining. As the pervasiveness of e‐commerce has diversified retail options, a variety of service‐related and entertainment outlets have opened in retail malls such as medical centres, beauty salons as well as karaoke centres and indoor laser game studios.
(Sources: CBRE Research, Chongqing Property Market Overview Q2 2017; JLL Research, 1H17 Chongqing Property Market At‐a-glance)
Chongqing Residential Market
Although various banks have increased mortgage interest rates in 2Q2017, buying sentiment remained active in the quarter. Despite a new supply of 3,307 high‐end residential units mainly concentrated in Nan'an and Yubei coming on stream in 1H2017, a total of 3,846 high‐end residential units were sold during the period. With the positive demand, the average selling price of high‐end residential projects rose by 27.8% Y‐o‐Y to RMB14,972 per sqm in 1H2017.
(Source: JLL Research, 1H17 Chongqing Property Market At‐a‐glance)
The recent cooling measures have curbed demand and supply in Beijing's high‐end residential market. In 2Q2017, sales volume fell 36.0% Y‐o‐Y and only one high‐end residential project was launched in the market. Notwithstanding the property curbs, demand in Beijing is still strong with the average sales price continue to increase, albeit slightly by 1.1% Q‐o‐Q.
(Source: JLL Research, Beijing's Second Quarter Property Review)
In Chongqing, the Group continues to focus on residential and bespoke projects at prime locations in the city. The construction of residential development Lion City Garden Phase 2A, 2B and 2C has been completed and handover is ongoing for the three phases. Likewise for build‐to‐order mixed‐development Ying Li International Hardware and Electrical Centre, the handover for Phase 1A commenced in 4Q2016 and is still ongoing. Construction for Phase 2A is progressing as planned and on track for handover in 2017 and 2018.
For the Group's retail malls, Ying LI IMIX Park Jiefangbei and Ying Li IMIX Park Daping, repositioning and tenant‐mix adjustments remain a priority to improve mall competitiveness and relevance to the needs of the consumers. Apart from drawing foot traffic with popular shopping and dining options, more service and experiential‐concept stores, which include learning centres, fitness clubs and indoor entertainment parks, have progressively been introduced at the mall.
In Beijing Tongzhou, Phase 1 of our investment project, the New Everbright Centre has achieved strong pre‐sales demand and construction is progressing as planned with handover set around late 2017 and 2018.
Given the present macro uncertainty and market volatility, the Group remains committed in enriching its presence in Chongqing and expanding to Tier 1 and fast‐growing Tier 2 cities while maintaining a watchful eye on market conditions and risks.