Principal activities are property development; property investment for rental purposes; and manufacturing and trading of garments.
Business Review - For the year ended March 31, 2013
Property Development, Investment and Hotel Operations
The Group's property development and investment activities are conducted by our 55.77% owned Hon Kwok Land Investment Company, Limited (“Hon Kwok”) (Stock Code: 160). Hon Kwok reported a turnover of HK$238 million (2012: HK$899 million) and a net profit of HK$402 million (2012 (restated): HK$217 million) for the financial year 2012-13.
Acquisition of Properties
As disclosed in our Interim Report, on 18 September 2012, Hon Kwok Group entered into an agreement to subscribe for 20% interest in Chinney Trading Company Limited (“Chinney Trading”) at a cash consideration of HK$368,537,000. For details, please refer to the Company's circular dated 25 October 2012. The above subscription constituted a major and connected transaction for both the Company and Hon Kwok and had been approved by the Company's and Hon Kwok's independent shareholders at their respective extraordinary general meetings. The above transaction was completed in February 2013 and thereafter, accounted for as investment in an associate in the financial statements. Chinney Trading, via its wholly-owned subsidiary, holds a development site situated at 中國深圳市南山區僑香路北側 (Qiaoxiang Road North, Nanshan District, Shenzhen, PRC) and to be developed into a group of buildings for composite use with total gross floor area of approximately 224,500 sq.m. Substructure works are in progress which are expected to be completed in the next quarter followed by foundation and superstructure works.
On 31 December 2012, a wholly-owned subsidiary of Hon Kwok entered into a sale and purchase agreement for the acquisition of a villa located in Longgang District, Shenzhen, PRC from a wholly-owned subsidiary of Chinney Alliance Group Limited for a cash consideration of HK$9,383,000. The above acquisition constituted a connected transaction for both the Company and Hon Kwok and was subject to the reporting and announcement requirements but was exempt from independent shareholders' approval. For details, please refer to the Company's announcement dated 31 December 2012. On 31 January 2013, the balance of the consideration was settled by Hon Kwok Group.
Property Development and Sales
Botanica Phase 3 寶翠園三期, Guangzhou, PRC
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 building. This project, with total gross floor area of approximately 229,000 sq.m., is currently under development and pre-sale by phases. In the prior financial years, Botanica Phases 1 and 2 寶翠園一及二期, with total 16 blocks of over 750 units, had been sold out and delivered to individual purchasers. Foundation works of Botanica Phase 3 寶翠園三期, comprising 12 blocks of about 530 units, are in progress and expected to be completed by the end of this year.
Metropolitan Oasis 雅瑤綠洲, Nanhai, PRC
The whole project, with total gross floor area of approximately 273,000 sq.m., is situated in Da Li District, Nanhai and currently under development by phases. Phase 1 of the project comprises 71 units of 3-storey town houses of about 18,000 sq.m. and 24 blocks of high-rise apartments of about 121,000 sq.m. Construction works of the town houses have been completed whilst those of the high-rise apartments are in progress and expected to be completed by stages commencing in the financial year 2013/14 through 2015/16. The completed town houses together with four blocks of the above apartment units have been launched to the market for sale. Up to the date of this announcement, total contracted sales exceeded RMB180 million and profits derived from the delivered town houses have been recognized in the income statement during the financial year under review whereas those from the other sold units will be recognized in due course.
Dong Guan Zhuan Road and Beijing Nan Road projects, Guangzhou, PRC
The development sites at Dong Guan Zhuan Road, Tian He District are still under planning stage. In respect of the project sites at 45-107 Beijing Nan Road, Yue Xiu District, design work is in progress.
Hon Kwok City Commercial Centre 漢國城市商業中心, situated at the junction of Shen Nan Zhong Road and Fu Ming Road, Futian District, is being developed as an 80-storey commercial/office/residential tower with total gross floor area of 128,000 sq.m. Its superstructure works are in progress and completion of construction is expected to be in 2015. This signature building will be held by the Group for recurrent rental income.
City Square 城市天地廣場, situated at Jia Bin Road, Luo Hu District, is a 5-storey commercial podium. The retail areas at ground level and level 2 of the podium are fully let. The average occupancy and room rates of both The Bauhinia Hotel (Shenzhen) 寶軒酒店（深圳）, a 158-room hotel at levels 3 to 5 of the above podium and City Suites 寶軒公寓, a 64-unit serviced apartments on top of the podium, both reported satisfactory returns.
Ganghui Dasha 港.大廈, situated at the junction of Beijing Road, Nanti Er Road and Baqi Er Road, Yue Xiu District, is a 20-storey commercial/office building with current occupancy rate approximate 75%.
The Bauhinia Hotel (Guangzhou) 寶軒酒店（廣州）, situated at Jie Fang Nan Road, Yue Xiu District, is a 166-room hotel leased by the Group. Its average occupancy and room rates are both satisfactory.
Chongqing Hon Kwok Centre 重慶漢國中心, situated in Bei Bu Xin Qu, is a completed 21-storey twin-tower office building atop of a 4-storey retail/commercial podium with current occupancy rate exceeding 95%.
Construction works of 金山商業中心 (Jinshan Shangye Zhongxin), adjacent to the above completed property, are well in progress. The whole project is scheduled to be completed by the end of this year. This twin-tower project, with total gross floor area of 133,502 sq.m., is being developed as a grade A office tower and a 5-star hotel plus apartments with a retail/commercial podium.
The retail areas at ground level of the hotel/apartment building at Connaught Road Central and Des Voeux Road Central have been fully leased out except for two small shops. The Bauhinia Hotel (Central) 寶軒酒店（中環）, situated at the four podium floors of the above building, is a 42-room boutique hotel. Its average occupany rate exceeds 90% with satisfactory room rates. The Bauhinia 寶軒, a 171-room serviced apartments atop of the above hotel, has an average occupation about 80%.
The Bauhinia Hotel (TST) 寶軒酒店（尖沙咀）, situated at nine upper floors of a 23-storey commercial/office building at Observatory Court, Tsim Sha Tsui, is a 44-room boutique hotel with average occupancy rate reaches 85% with satisfactory room rates. Renovation works for conversion of ten lower floors of the above building into 54 additional hotel rooms are in progress and expected to be completed in early next year. Thereafter, the whole building will become a boutique hotel comprising a total of 98 rooms with the remaining floors as commercial use for rental income.
Hon Kwok Jordan Centre 漢國佐敦中心, situated at Hillwood Road, Tsim Sha Tsui, is a 23-storey commercial/office building and recorded a decent adjustment of rental rate upon renewal of tenancies with current occupancy rate over 95%.
J.L. Garment Group, our wholly owned subsidiary, reported a turnover of HK$125 million (2012: HK$160 million) with a net profit of HK$3 million (2012: HK$2 million) for the year under review.
The business condition remained extremely tough in the aftermath of the Eurozone debt crisis, greatly affecting the export oriented manufacturing businesses. With no apparent sign of revitalization in the European consumer market, our customers, mainly from Germany and Italy appeared to be more cautious and pessimistic. They tended to scale down their retail sales operation, eventually hitting adversely on our garment sales and profit. Meanwhile, we strive to maintain our existing customer base in the European market and in the meantime explore new business opportunities from the local and South East Asia markets.
Due to increase in labour and material costs, J.L. Group continues to implement tight budget control and optimize its production base in Mainland China to improve overall competitiveness to combat current market condition.
Due to the upsurge of property market in Hong Kong, J.L. Group recognized property revaluation gains of HK$9.2 million (2012: HK$2.5 million) on investment properties while the self use property in Hong Kong was carried at historical cost. The investment properties were leased for rental income.
Construction and Trading
Chinney Alliance Group Limited (“Chinney Alliance”), a 29.1% owned associate recorded turnover and net profit for the year ended 31 December 2012 of HK$2,852 million (2011: HK$2,220 million) and HK$50 million (2011: HK$23 million) respectively.
With the implementation of infrastructure projects by Hong Kong Government as well as its policy to boost housing supply, the local construction industry has regained its momentum. A substantial increase in turnover and profit was recorded in the foundation and piling dvision due to the steady increase in the number of projects awarded from both the private and public residential development sectors. Contracts margin has shown improvement amid the highly competitive market. In addition, as additional projects in the building related contracting services division were newly commenced during the year, profit recognized in the second half of the year further enhanced its operating result.
However, the plastic trading division recorded a drop in profit by HK$3 million despite turnover maintained as previous year. Under the present tough and competitive environment, the management continues to develop its business base in China, with focus on customer with growth potential and to develop new products and suppliers to suit the customers' demand.
Owing to the price fluctuation in Hong Kong stock market for the year under review, the Group recorded in our income statement an unrealized fair value gain of HK$10.5 million from a listed investment held by the Group as long term investment.
Business Outlook - For the year ended March 31, 2013
The global economy remains volatile and challenging. The progress of economic recovery in the European countries and the US remains vital to the global economic recovery. After the Eurozone debt crisis broke out since 2009, the Euro countries have imposed austerity measures while struggling to improve the soaring unemployment and deepening recession. With no sign of recovery, the European Central Bank has recently implemented looser monetary policies to accelerate economic growth. In the US, although statistical data revealed that unemployment rate is improving, it is expected that the US market will remain stagnant for a prolonged period before a sustainable progress is attained.
In the Mainland China, it is expected that the Central Government will continue its restrictive measures to stabilize the residential property market. Nevertheless, in light of the rapid urbanization in China, domestic demand for residential property will remain strong and sustainable. On the other hand, weak manufacturing data recorded in this year indicating a softening external demand on China's manufacturing market. The moderation of economic growth in China, being the world's second largest economy may bring about further uncertainties to the global markets.
Source: Chinney Investment (00216) Annual Results Announcement
||James Sai-Wing Wong
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