Financial Statement Announcement for 2nd Quarter ended 30 June 2018
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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-overs. Consequently, quarterly results may not be a good indication of profitability trend.
For the 6 months and quarter ended 30 June 2018
Revenue for 2QFY2018 declined by 24.5% Y-o-Y or RMB59.8 million, to RMB183.8 million (2QFY2017: RMB243.6 million). The decline was due to a decrease in sales of properties by RMB57.6 million, mainly attributable to handover of remaining residential unit at Lion City Garden Phase 2A, 2B and 2C, lower handover of commercial unit at Ying Li International Electrical and Hardware Centre ("Ying Li IEC") Phase 1A and 2A, negated by sales from some of the older commercial office properties.
Gross profit for 2QFY2018 increased by 27.0% Y-o-Y or RMB17.8 million, to RMB84.0 million (2QFY2017: RMB66.2 million), mainly attributable to the gross profit for Sales of Properties segment which increased by RMB17.8 million. This increase was primarily due to older completed commercial office properties with higher gross profit that were sold and handed over in 2QFY2018.
Gross profit margin
Overall gross profit margin for 2QFY2018 increased by 18.5 percentage point, to 45.7% (2QFY2017: 27.2%), mainly attributable to the gross profit margin for Sale of Properties segment which increased by 18.4 percentage point. This increase was primarily due to older completed commercial office properties with higher gross profit margin that were sold and handed over in 2QFY2018.
The year-on-year decrease in interest income mainly arose from the withdrawal of pledged fixed deposits to financial institutions and others.
Selling expenses for 2QFY2018 remains relatively stable Y-o-Y at RMB14.1 million (2QFY2017: RMB 13.5 million), with a slight increase in advertising and promotion activities.
For 2QFY2018, administrative expenses increased by RMB27.4 million, to RMB55.6 million (2QFY2017: RMB 28.2 million), solely due to unrealised foreign exchange losses, a reversal from unrealized foreign currency exchange gains in the comparative quarter, arising from revaluation of foreign currency liabilities. The depreciation of RMB and SGD against USD was 5.2% and 4.1% respectively in 2QFY2018.
The increase in finance costs of RMB24.7 million to RMB49.8 million for 2QFY2018 (2QFY2017: RMB25.1 million), is mainly due to the termination of finance costs capitalisation upon disposal of Ying Li International Commercial Centre in 4QFY2017.
Taxation expenses in 2QFY2018 remained relatively stable at RMB4.1 million (2QFY2017: RMB4.2 million).
(Loss)/Profit attributable to ordinary shareholders of the Company
The Group reported loss attributable to the ordinary shareholders of the Company amounting to RMB34.1 million for 2QFY2018, mainly due to unrealised foreign currency exchange losses and termination of finance costs capitalisation upon disposal of Ying Li International Commercial Centre in 4QFY2017.
Statement of Financial Position
Total Assets of the Group decreased by 8.9% or RMB991.7 million, to RMB10,095.4 million (31 December 2017: RMB11,087.1 million), mainly due to a net decrease in trade and other receivables of RMB1,145.5 million arising from partial divestment proceeds received in April 2018 from disposal of subsidiary in 4QFY2017, offset by an increase in cash and cash equivalents of RMB 364.8 million.
The Group's total liabilities decreased by 15.4% or RMB894.3 million, to RMB4,899.1 million (31 December 2017: RMB5,793.4 million), mainly due to a decrease in bank loan of RMB483.9 million and trade and other payables of RMB383.5 million.
The Group's total equity decreased by RMB97.4 million to RMB5,196.3 million (31 December 2017: RMB5,293.7 million), mainly due to a decrease in retained profits.
Statement of Cash Flow
For 2QFY2018, the increase in unrestricted cash and cash equivalents of RMB190.9 million was mainly due to:
- net cash inflow of RMB1,050.0 million from operating activities;
- net cash outflow of RMB0.2 million from investing activities; and
- net cash outflow of RMB858.9 million from financing activities.
The net cash inflow from operating activities of RMB1,050.0 million was mainly attributable to cash generated from operating profit of RMB18.1 million. This was supplement by decrease in development properties of RMB10.4 million, and decreased in trade and other receivables of RMB1,123.9 million arising from the partial divestment proceed received in 2QFY2018 from disposal of subsidiary transacted in 4QFY2017, and offset by decrease in trade and other payables of RMB37.8 million, net interest and income tax paid of RMB64.6 million.
Net cash used in financing activities of RMB858.9 million includes: (i) placement of RMB296.4 million fixed deposits with financial institutions to secure borrowings; ii) repayment of borrowings RMB 613.1 million, and iii) payment of interest on perpetual convertible securities amounting to RMB93.7 million. This was offset by the drawdown of loans amounting to RMB144.3 million.
Commentary On Current Year Prospects
According to Chongqing Statistics Bureau, Chongqing's GDP grew at 6.5% Y-o-Y in 1H2018 and reached RMB982.1bn. This growth rate is slightly below both the national's 1H2018 Y-o-Y growth rate of 6.8% and the 7% Y-o-Y growth rate Chongqing achieved in 1Q2018. This is due to lower growth from the agriculture and industrial sectors, negated by the higher growth in services, technology and export sectors.
Chongqing Office Market
During the 1H2018, a total of 203,800 sqm of new supply of grade A office was added to the market. With net absorption at 172,200 sqm, the vacancy rate of Grade A office dropped by 2.3 ppt. While Jiefangbei CBD continues to be the preferred location for overseas companies and command the highest rent among all the business district in Chongqing, the substantial Grade A office demand in 1H2018 was driven by the domestic enterprises in Jiangbeizui CBD.
(Source: CBRE, Chongqing Property Market Report H1 2018)
Chongqing Retail Market
In 1H2018, 378,000 sqm of new supply added to the market. With the net absorption at 342,200 sqm, the vacancy rate remains relatively unchanged. The prime retail submarkets continue to be Guanyinqiao and Jiefangbei, with new submarkets emerge at Danzishi, Yubei and Dahua distinct. During the period, the existing malls continue to proactively adjust their tenant mix in reaction to continued new supply, by bringing popular elements, with themed shopping space and flexible opening hours. These new tenants mainly concentrate on Retail (fashion, accessories & jewelry, electronics and instrument, cosmetics & personal care), F&B (formal and casual dinning, coffee and café, dessert & ice cream) and Lifestyle (beauty, health & medical service, education & training, recreation & sports etc).
(Source: CBRE, Chongqing Property Market Report H1 2018)
The Group currently has two projects under-development. The Lion City Garden is at the last phase of development and the bespoke development Ying Li International Hardware and Electrical Centre (IEC) is progressing in accordance with plans with the first and second batch buyers renovated their shops and progressively conducting their businesses. In 2Q2018, the Group acquired additional land parcels for Phase 2B for the IEC project.
On the retail front, the Group continues to optimize and/or sharpen its focuses on targeted audiences at both Ying Li IMIX Park Jiefangbei Mall and Ying Li IMIX Park Daping Mall. Firstly, Ying Li IMIX Park Jiefangbei Mall and Ying Li IMIX Park Daping Mall have undergone some space optimization process to increase the leasable areas. Secondly, Ying Li IMIX Park Daping Mall further strengthens its focus as a local community mall by further increase the proportion of spaces allocated to stuffs and services needed by the nearby residences. These include enrichment/education centres, popular book and stationery store and children-centric stores.
The Group's investment in New Everbright Centre project remains healthy amidst the purchase restrictions meant to rein in rising home prices in Beijing Tongzhou. Phase 1 construction, consisting of 4 SOHO towers has been fully completed. Phase 2 construction, which consists mainly two office towers and part of retail podium, has reached level 3 of the office tower as of end June 2018. For Phase 3 construction, which consists one premium office tower and remaining part of the retail podium, has started foundation work in 2Q 2018.
Looking ahead, the on-going tariff wars between US and PRC, and the depreciation of the RMB against USD and SGD, will have an adverse impact on the market sentiments and the Group's financial performance. The Group will remain watchful on the macro economic uncertainties and market volatilities while continuing to scout cautiously for sound development and investment opportunities in Tier 1 and fast-growing lower tier cities to build pipelines for future growth.