Financial Statement Announcement for the 4th Quarter and Full Year Results ended 31 December 2016
Note: Files are in Adobe (PDF) format.
Please download the free Adobe Acrobat Reader to view these documents.
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 twelve months and quarter ended 31 December 2016
For the full year 2016, Revenue of the Group increased by RMB462.7 million (75.0%) to RMB1.08 billion as compared with FY2015. The increase was mainly driven by the continued handover of the residential units at San Ya Wan Phase 2 project and revenue recognized from the commencement of handover at Ying Li International Electrical and Hardware Centre ("Ying Li IEC") Phase 1A in the 4th quarter of 2016. Revenue of the Group for 4QFY2016 increased by RMB261.0 million (85.0%) to RMB567.9 million as compared with that of 4QFY2015. The increase was mainly due to higher revenue from the Sale of Properties segment that was mainly driven by the commencement of units' handover at Ying Li IEC Phase 1A.
Rental income increased by a modest RMB1.2 million (0.6%) for the full year compared to FY2015 due to a healthy increased rental contribution from IMIX Park Daping mall but then negated by the introduction of VAT regime in China and loss of income due to certain tenants in other properties not renewing their leases and rent free periods had to be provided to new tenants. Rental Income increased by RMB5.6 million (11.5%) in 4QFY2016 to RMB54.7 million as compared to the same period last year.
Gross profit of the Group for 4QFY2016 increased by RMB66.8million (84.4%) to RMB146.0 million as compared to the same period last year. The increase was mainly due to the handover of completed units at Ying Li IEC Phase 1A. Gross profit for the full year increased by RMB77.2 million (29.6%) to RMB338.1 million in line with the increase in revenue.
Gross profit margin
The Group's gross profit margin for FY2016 decreased by 11 percentage points to 31.3%. Gross profit margin from the Sale of Properties decreased by 1.7 percentage point as higher proportion of properties handed over in 2016 are residential and industrial properties where profit margin are lower than those from the office properties handed over in 1QFY2015 to 3QFY2015.
Gross profit margin of the Group for 4QFY2016 was steady, decreasing only marginally by 0.1 percentage point to 25.7% as compared to the same period last year.
The year-on-year decrease in Other Income was mainly due to lower interest income from deposits.
Selling expenses increased marginally by RMB0.1 million (0.5%) in 4QFY2016 to RMB27.7 million as compared to 4QFY2015 mainly due to ongoing advertising and promotional activities for ongoing projects.
The increase in Selling expenses in FY2016 of RMB7.0 million (9.5%) was mainly due to an increase in the sales commissions paid out due to increased sales during the year.
Administrative expenses were RMB15.4 million (35.0%) higher for the quarter under review as compared to 4QFY2015. The increase is mainly due to an increase in foreign exchange losses arising from a USD denominated loan, bad debt provision and an increase in staff costs.
Administrative expenses increased by RMB9.6 million (8.0%) during the year as compared to FY2015 mainly due to an increase in foreign exchange losses arising from the strengthening of the USD.
Fair value gain on investment properties
For the full year FY2016, the total fair value gain on investment properties was RMB24.3 million. This gain is the difference between the value of investment properties as at 31 December 2016 as compared to the carrying value of investment properties as at the equivalent period in 2015. The decline in Fair Value gain was mostly due to investment properties registered higher level of revaluation gain in 2015 compare to a more modest asset inflation in 2016.
Fair value on other investments
For the full year FY2016, the fair value gain from investment in Beijing Tongzhou project amounted to RMB18 million, as compared to RMB43 million in FY2015.
For the quarter under review, finance costs were RMB1.4 million (5.9%) lower as compared to 4QFY2015. This is mainly due to a reduction in borrowing costs at the Group. Interest expense directly attributable to projects would generally be capitalised as part of the project costs.
The decrease in Finance costs of RMB9.3 million (9.1%) during the year was mainly due to lower interest rates achieved through the refinancing of some of the outstanding loans during the year.
During the quarter under review, tax expense decreased by RMB12.1 million (28.4%) year-on-year to RMB30.6 million as compared with 4QFY2015 mainly due to lower taxable profits generated from the sale of properties in 4QFY2016.
Profit for the Period and Total comprehensive income for the period
The profit for the quarter decreased by RMB53.8 million as compared to 4QFY2015. The decrease is entirely due to the decline in Fair Value gain in Investment Property and Other Investment. If we had excluded Fair Value gain and its associated deferred tax expenses in both periods, profit for 4QFY2016 would have risen by RMB33.0 million. The profit for the year decreased by RMB39.3 million as compared to FY2015. The decrease is entirely due to the decline in Fair Value gain in Investment Property. If we had excluded Fair Value gain and its associated deferred tax expenses in both periods, profit for FY2016 would have risen by RMB47.4 million.
Total comprehensive income for the period decreased by RMB37.1 million as compared to 4QFY2015. The decrease is the net result of lower Profit for the period, negated by the reversal of Foreign currency translation differences of RMB16.7m. For FY2016, total comprehensive income decreased by RM67.4 million due to the combined result of lower Profit for the period and reversal of Foreign currency translation differences of RMB28.1m.
Profit attributable to ordinary shareholders of the Company
Overall, net profit attributable to the ordinary shareholders of the Company decreased by RMB48.5 million (42.4%) to RMB65.9 million in 4QFY2016. For FY2016, net profit attributable to the ordinary shareholders of the Company decreased by RMB38.5 million as compared to FY2015.
Statement of Financial Position
Total Assets of the Group decreased by a very modest RMB57.5 million to RMB11.9 billion during the year and was mainly due to a decrease in cash and cash equivalents of RMB646.4 million. This was offset by: i) an increase in development properties amounting to RMB535.9 million as progress is being made on the Ying Li International Commercial Centre and Ying Li International Electrical and Hardware Centre (where much of the money was deployed); and ii) an increase in investment properties and other investments amounting to RMB84.4 million that mainly arose from fair value gains on these assets and additional assets classified as investment properties.
The Group's total liabilities decreased by RMB36.8 million to RMB6.8 billion during the period under review. The decrease in liabilities was mainly due to reduction in borrowings amounting to RMB276.9 million due to repayment of loans. This was off-set by an increase in trade and other payables of RMB231.8 million that was mainly attributable to an increase in pre-sales proceeds received from the pre-sales of Ying Li IEC.
The Group's total equity decreased by a modest RMB20.8 million to RMB5,062.0 million during the period under review, mainly due to a decrease in the Exchange fluctuation reserve because of RMB devaluation in FY2016. 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 increase in unrestricted cash and cash equivalent of RMB22.1 million for the quarter under review was mainly due to:
- net cash inflow of RMB106.5 million from operating activities;
- net cash outflow of RMB 0.1 million from investing activities; and
- net cash outflow of RMB84.2 million from financing activities.
The net cash inflow from operating activities of RMB106.5 million which was mainly attributable to cash generated from operating profit of RMB65.0 million and a decrease in trade and other receivables of RMB172.4 million mainly due to collection of outstanding sums on contracted pre-sales and the refund of deposits previously placed with a financial institution. This was off-set by a decrease in trade and other payables of RMB257.5 million mainly due to the payment made to suppliers, and net interest and income tax paid of RMB29.9 million.
Net cash used in financing activities of RMB84.2 million was mainly due to deposits placed with financial institutions that were pledged to secure financing facilities.
Commentary On Current Year Prospects
Chongqing ended the year on a positive note with a GDP growth of 10.7% Y-o-Y to RMB1,755.9 billion for 2016, according to Chongqing Statistics Bureau. The city outpaced the country's overall GDP growth of 6.7% and maintained its position as the fastest growing city in the People's Republic of China ("PRC"). Amidst Chongqing's stable economic development, disposable income per capita rose by 8.7% to RMB29,610 while total retail sales of consumer goods expanded by 13.2% to RMB727.1 billion in 2016.
Chongqing Office Market
The Chongqing office market saw improvement in the absorption and vacancy rates in 2016 against the backdrop of an oversupply situation. However, there was a slight decline in average rental rates as landlords reduced rates to stimulate rental demand. In 4Q2016, net absorption leaped to 147,000 sqm despite the release of one Grade A office located in Jiangbeizui with a gross floor area ("GFA") of 107,500 sqm. This is a record high for the past two years and represented an increase of 185.9% Q-o-Q. The increase is driven by demand from local and domestic office upgraders and new set-ups, especially from the financial sector. As the preferred location for MNCs, office demand in Jiefangbei remained healthy and the average rental for offices (Grade A and Non-Grade A offices) remained resilient at RMB93.6 per sqm per month as compared to the average office rental across Chongqing at RMB82.5 per sqm per month in 4Q2016.
(Sources: JLL Research, 2016 Chongqing Property Market Overview; CBRE Research, Chongqing Property Market Overview 2016 Annual Report)
Chongqing Retail Market
In 2016, Chongqing's retail market experienced steady demand with improving vacancy rates albeit at relatively high inventory levels. However, the new supply of retail malls opened in 2016 was mainly concentrated in non-core CBD areas such as Yubei, Nanbin Road and Dashihua districts. In 4Q2016, two retail malls opened in Yubei and Nanping with a combined GFA of 320,000 sqm while net absorption was 298,200 sqm. The average vacancy rate dropped 0.3 percentage points to 10.7% in 4Q2016 as mall repositioning and tenant mix adjustment picked up steam.
The retail themes in 2016 were predominantly focused on experiential and family/children-related concepts aimed at increasing consumer spending and foot traffic within malls. The debut of Madame Tussauds, the first in Western China, and Sealife Aquarium, both in Nanbin Road during 4Q2016 are examples of such concepts.
(Sources: JLL Research, 2016 Chongqing Property Market Overview; CBRE Research, Chongqing Property Market Overview 2016 Annual Report)
Chongqing Residential Market
In view of the short-term oversupply in the residential market, developers were focused on destocking in 2016. As such, only a total of 5,500 high-end residential units were launched during the year, representing a drop of 55.3% Y-o-Y. Although the total premium units sold were slightly down by 1.9% Y-o-Y to 10,200 units, the average selling price (ASP) rose by 9.6% Y-o-Y to RMB13,000 per sqm in 2016. The improvement in the ASP is on the back of Chongqing's robust economy growth and the various favourable policies enacted to lower down-payment requirements and lending rates.
(Source: JLL Research, 2016 Chongqing Property Market Overview)
Following the latest tightening of property purchase restrictions in Beijing at the end of September 2016, seven projects were launched in the city's high-end residential market in 4Q2016. This brought the total inventory up by 6.1% Q-o-Q to 24,291 units. As a result of the latest purchase restrictions, transaction volume in Beijing's overall residential market decreased by 35.8% Q-o-Q in 4Q2016. However, the high-end residential market was better cushioned as transaction volume declined by 10.0% Q-o-Q and increased more than 100% Y-o-Y in 4Q2016.
(Source: Colliers International, Beijing Residential Q4 2016)
Chongqing's foreign trade is expected to expand further which would bring about sustained economic growth on the back of the One Belt One Road Initiative, China-Singapore (Chongqing) Demonstrative Initiative on Strategic Connectivity, and approval from the central government to set up a free-trade zone in the city. Coupled with a gradual influx of domestic and foreign corporations, demand may increase in tandem for Chongqing's office, retail and residential markets.
CBRE Research expects office demand to remain stable in 2017 with a net absorption of between 0.4 and 0.5 million sqm per annum in the next four years. On the retail front, CBRE Research expects mass market retailing demand to spur from family consumption through family/children and entertainment-centred themes. For Chongqing's residential market, demand will continue to improve on the back of robust economic growth while the city remains unencumbered from property tightening measures.
In view of Chongqing's promising economic outlook, the Group's existing projects continued to be poised to benefit from any uptick in demand. The phased completion and handover of Lion City Garden commenced in 4Q2015 and is still ongoing continuing into 2017, while the completion and handover for the first phase of Ying Li International Hardware and Electrical Centre had started in 4Q2016. Pre-sales for Ying Li International Commercial Centre had commenced in 3Q2016 and is on track for completion in 2018. For the retail malls, the Group continues to concentrate its efforts on the repositioning of its two malls- Ying LI IMIX Park Jiefangbei and Ying Li IMIX Park Daping, with an emphasis on in-store experiences, lifestyle, family/children and entertainment concepts tailored to the needs of their respective target audiences. Moving forward, the Group will continue to focus on developing high quality commercial, residential and bespoke projects at prime locations in Chongqing as well as Tier 1 and fast-growing Tier 2 cities in PRC.