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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 three months and quarter ended 31 March 2018
Revenue of the Group increased by RMB107.4 million (53.1%) to RMB309.5 million as compared with 1QFY2017. The increase was mainly driven by Sale of Properties segment, due to the continued handover of the bespoke units at Ying Li International Electrical and Hardware Centre ("Ying Li IEC") Phase 1A and 2A and the sales of completed units from older commercial projects.
Gross profit of the Group for 1QFY2018 increased by RM29.9 million (54.9%) to RMB84 million as compared to the same period last year mainly due to higher contribution from the Sale of Properties segment. The increase was mainly due to the fact that the mix of properties that were sold and handed over in 1QFY2018 have higher gross profit as compared to the residential units at San Ya Wan Phase 2 and bespoke units at IEC Phase 1A handed over in 1QFY2017.
Gross profit margin of the Group from the Sale of Properties segment increased by 9.5 percentage points to 15.2% in 1QFY2018. The increase was mainly attributable to the higher gross profit margin from the mix of properties that were sold and handed over in 1QFY2018 as compared to the residential units at San Ya Wan Phase 2 and bespoke units at Ying Li IEC Phase 1A that were handed over in 1QFY2017.
The decrease in Interest income mainly arose from the withdrawal of fixed deposits pledged to financial institutions and others.
Selling expenses decreased marginally by RMB2.2 million (16.3%) in 1QFY2018 to RMB11.5 million as compared to 1QFY2017 mainly due to lower expenditures incurred on advertising and promotion activities.
Administrative expenses were RMB4.3 million (33.4%) higher for the quarter under review as compared to 1QFY2017 mainly due to higher commissions paid out during the quarter and an increase in wage related expenses arising from changes in the employees' compensation structure and higher advisory and professional fees incurred.
For the quarter under review, finance costs were RMB25.6 million (111.5%) higher as compared to 1QFY2017 due to a termination of the amount of capitalised finance costs on the Ying Li International Commercial Centre upon the disposal of the project in 4QFY2017.
During the quarter under review, tax expense increased by RMB5.6 million (348.9%) as compared with 1QFY2017 mainly due to higher taxable profits generated from the sale of properties in 1QFY2018.
Overall, net profit attributable to the ordinary shareholders of the Company decreased by RMB6.0 million (56.3%) to RMB4.7 million in 1QFY2018.
Total Assets of the Group decreased by RMB330.2 million to RMB10.8 billion during the quarter mainly due to a decrease in development properties of RMB198.4 million arising from the handover of completed properties to purchasers and a decrease in cash and cash equivalents of RMB121.5 million mainly due to the repayment of loans and trade payables.
The Group's total liabilities decreased by RMB302.4 million to RMB5.5 billion during the period under review. The decrease in liabilities was mainly due to a reduction in borrowings amounting to RMB39.5 million combined with a decrease in trade and other payables of RMB244.6 million mainly due to progress payment made for construction costs and a decrease in advances received from customers as some pre‐sales units were handed over in the quarter.
The Group's total equity decreased by RMB27.8 million to RMB5.3 billion during the period under review mainly due to a decrease in Retained profits.
The decrease in unrestricted cash and cash equivalent of RMB223.9 million for the quarter under review was mainly due to:
The net cash outflow from operating activities of RMB93.8 million was mainly attributable to a decrease in trade and other payables of RMB295.9 million mainly due to the payment made to suppliers and lower advance payment from customers and net interest and income tax paid of RMB63.8 million. This was off‐set by cash generated from operating profit of RMB60.0 million and a decrease in trade and other receivables of RMB7.9 million.
Net cash used in financing activities of RMB129.8 million includes: (i) placement of fixed deposits with financial institutions to secure borrowing of RMB101.6 million; and ii) repayment of borrowings amounting to RMB136.5 million. This was off‐set by the drawdown of loans amounting to RMB108.4 million.
According to Chongqing Statistics Bureau, Chongqing's GDP grew at 7.0% Y‐o‐Y in 1Q2018 and reached RMB466.1bn. While this is above the national's 1Q2018 average growth rate of 6.8% Y‐o‐Y, it is below the growth rate achieved in 2017, which was 9.3% Y‐o‐Y. This due to lower growth from the Investment and Industrial sectors.
During the quarter, a total of 108,000 sqm of new supply of grade A offices were added to the market. With that, the vacancy rate of grade A office increased by 0.7 ppt. Jiefangbei CBD continues to be the preferred location for overseas companies and command the highest rent among all the business district in Chongqing. New demand for grade A office mainly came from business service, TMT, non‐traditional finance and consumer service sector, where the total take up rate from these sectors constituted more than 75% of the grade A office take‐up.
(Source: CBRE, Chongqing Property Market Overview Q1 2018)
In 1Q2018, only 33,000 sqm of new supply added to the market. With the net absorption rate at 34,300 sqm, the vacancy rate remains relatively unchanged. The prime retail submarkets continue to be Guanyinqiao and Jiefangbei, even though more and more secondary and emerging submarkets are forming. During the quarter, new opening continues to concentrate on Retail (fashion, accessories & jewelry, electronics and instrument), F&B (formal and casual dining, coffee and café) and Lifestyle (beauty, health & medical service, education & training, recreation etc).
(Source: CBRE, Chongqing Property Market Overview Q1 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 batch buyers renovated their shops and progressively commencing their businesses at the Centre.
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. Specifically, Ying Li IMIX Park Jiefangbei mall is carrying out space optimization process to increase the leasable areas, and 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, indoor entertainment facilities 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. Construction for the 4 SOHO towers in phase 1 have completed. Phase 2 construction, which consist mainly the office towers have started in 2017 and is targeted to complete in 2021. The construction for phase 3 is under preparation and is scheduled to start in 2018.
Looking ahead, the Group will remain watchful on the macro industry uncertainty and market volatility while continuing to scout for sound development and investment opportunities in Tier 1 and fast‐growing lower tier cities to build pipelines for future growth.