The principal activities of the Group are the provision of (a) online and traditional brokerage of securities, options, futures, and leveraged foreign exchange contracts as well as mutual funds and insurance-linked investment products, (b) principal investments of securities and options, (c) margin financing and money lending services, (d) corporate finance services, and (e) sales of furniture and household items and electrical appliances.
Business Review - For the year ended December 31, 2012
Financial Services Business - FSG
Since last year, CFSG is dedicated to developing the mobile trading services by introducing various stock trading apps on iPhone, iPad and Android mobile and tablet devices. Clients are able to get instant market information and trade anytime and anywhere, borderless. In addition to the Hong Kong stocks, we also developed a futures trading app on iPhone to broaden our product offerings. We have also launched an online trading application “CASH HK Stocks Express” to facilitate mainland clients by providing them with a user-friendly quotation and trading platform layout. Given the new apps, our client can leverage on our state-of-art trading platform to invest in both exchange traded equities and commodities products any time and anywhere without limit. To cope with the advancement of the technology, we have made significant investment in the IT infrastructure and upgrading the trading platform. We are one of the first movers to subscribe for the hosting services offered by the HKEx and move into the low-latency co-location data centre at Tseung Kwan O Industrial Estate in December 2012. In addition, there have been increasing demands for international commodities from Hong Kong and the mainland China. To improve our services and competitiveness in international commodities trading, preparation works for the direct participation to the Hong Kong hub of CME (Chicago Mercantile Exchange) and as market maker for CNH futures (U.S. Dollar/Offshore Chinese Renminbi (CNH) futures) were made during the year. Our efforts got pay-off. In February 2013, we were admitted one of the three market makers for CNH futures of CME.
Apart from our strong foothold in the Hong Kong market, we have also gained wide recognition in the mainland market. We received the “Most Popular HK Brokerage Institution” accolades in consecutive from three major mainland media, namely QQ.com, China Finance Online and Money Weekly magazine. This proves that we are widely recognized in the mainland as China's premier financial services provider.
In the year forward, we will continue to improve our online trading platform to provide clients with a more reliable and stable trading channel.
To tap into the lucrative fund management business in China, CFSG invested in Infinity, a prominent cross-border, Chinese focused fund management group with a RMB2 billion asset under management through a growing portfolio of funds investing in China. The Group considers it a golden opportunity to diversify into the fund management business and reap from the booming PRC market, given the steady and consistent revenue stream of the Infinity RMB Funds.
With CFSG's established strengths in brokerage, investment banking, wealth management and asset management, we strongly believe that further synergies can be derived through closer ties with Infinity.
Infinity currently owns 16 local RMB funds, linking people, technologies and markets together. It invests in a diverse portfolio of Chinese companies in a wide range of industry sectors, with an impressive track record for partnering with high-growth technology companies. This coincides with CFSG's technology-focused strategy.
Negative market sentiment impacted the IPO market adversely in 2011. Such unfavourable market condition continued in 2012, reflected by a significant drop in the total fund raised through IPOs in Hong Kong by more than 60% as compared with 2011.
Notwithstanding the prevailing lacklustre market sentiment, there are still a lot of quality companies in China that look for IPO opportunities in Hong Kong and we have successfully obtained mandates to act as the sponsor to certain IPO applicants during the period. In addition to the IPO projects, we also acted as the financial advisor/independent financial advisor in respect of M&As, fund raising activities and other corporate finance exercises. In particular, we were appointed as the financial advisor/independent financial advisor of H-Share listed companies/A-Share listed companies in China, including Guangzhou Pharmaceutical Company Limited and Beiren Printing Machinery Holdings Limited, in respect of their respective major assets reorganisation.
The market sentiment is expected to be improving in 2013, but the global as well as local economies are still subject to instability. Capital market participants will face another year of challenges in 2013. We will continue to maintain our proven strategy to have a balanced focus on IPOs and other financial advisory and corporate transactions in the near future for the purpose of diversifying our business and income streams.
During the year, most investors were cautious toward both investment and speculations, especially in domestic equities market. Trading volume and our brokerage income are inevitably adversely affected. Nevertheless, there was steady demand for international commodities trading against the backdrop of hedging needs and speculation of commodities prices as a result of further quantitative easing measures around the world. The Group's broking business recorded an operating revenue of HK$185.4 million in the reporting period, decreasing 29.1% compared with that of last year.
Looking forward, since the last quarter of 2012, we noted a surge in both trading volume and the market index. It is cautiously expected that our broking business can benefit from increased participation of our investors given the improvement of market sentiments.
As China's economy bottomed out in the fourth quarter of 2012, investor regained confidence in the economic outlook of mainland China and the capital began to inflow into Hong Kong. The Hong Kong stock market is trading at around 11 times prospective 2013 P/E and around 3.2% dividend yield. The current valuation is attractive and undemanding. As the concerns of some negative factors, such as the slowdown of the economic growth in China, have been somewhat eased, we are conservatively optimistic about the stock market outlook of Hong Kong in 2013.
Looking forward, we expect China's economy to grow at a range between 7.6% and 8% in 2013. Corporate earnings are expected to resume positive growth in the second half, which should be a catalyst to Hong Kong stock market. We expect our AUM and revenue, such as performance fee and management fee, to remain stable in 2013.
During the past year, we continued to devote more resources to strengthen our discretionary portfolio management business. All three landmark portfolios achieved respectable performance and outperformed their respective benchmarks. This value-added service not only benefited the existing clients but also helped attract new assets from prospective clients.
To better serve the investment needs of clients and to accommodate different risk appetite, we introduced a number of new investment tools. Amongst the many, private equity investment products in China and pre-development land investment opportunities overseas have successfully gained recognition from the market and they have outperformed our initial projection. The new services have not only strengthened the firm-client relationship but also increased our income sources. Our goal remains to increase income and diversify revenue sources through strengthening our portfolio management capability and recurring income mix.
Retail Management Business - CRMG
Pricerite Operation Review
Impacted by the global economic crisis, Hong Kong continued to undergo economic downturn in 2012. However, Pricerite managed to achieve steady growth in both revenue and gross profit amid unfavorable economic environment, mainly thanks to the strategic initiatives embarked throughout the year.
Store Network & Operations
In the reporting year, Pricerite strengthened its store network by adding a flagship store in Mongkok and a district store in Tseung Kwan O, bringing together 34 outlets in total. The first Super Mega flagship store was opened in Mongkok in May with a comprehensive range of furniture, home products and electrical appliances. The district store in Tseung Kwan O was opened in the second half of the year, tapping potential market in this densely populated area. These two stores have been successful in attracting new and young customers with encouraging sales performance. The accomplishments were mainly attributable to the brand-new store image, cozy and friendly shopping environment and enhanced merchandise offered in the new stores.
Furthermore, Pricerite dedicatedly renewed a number of existing stores through the long-term rejuvenation program, targeting to highlight its market position as the home-furnishing specialty store providing a true “one-stop shopping” experience for the busy customers in urban city nowadays.
At the store level, Pricerite also deployed advanced technology to facilitate product presentation by applying QR code, tablet PCs and videos to feature merchandises.
LIVING SMART by Pricerite
During 2012, Pricerite adopted a new branding and launched a marketing campaign named Living Smart 生活智慧 with a clear objective to providing smart and flexible living solutions to urban household living in cramped apartments.
To deliver our Living Smart 生活智慧 concept, home-furnishing and household tips and smart product recommendations are highlighted in our marketing communications and in-store materials. Customers can now obtain smart living ideas easily at Pricerite and better understand how Pricerite products are designed to provide extra benefits in space optimization, home-furnishing and decoration so as to improve their living quality.
In response to the increasing demand in space optimization, a new product range of “transformable furniture”, namely Hiddenbed, was introduced. Hiddenbed has demonstrated proven success in most major cities around the globe. It enables customers to transform a single bed to a desk, and vice versa in just a few seconds, with a simple touch, bringing the benefits of multifunction together with space maximisation to customers.
In addition, Tailor Made Furniture (TMF) and Tailor Size Furniture (TSF), both launched in 2011, continued to grow satisfactorily during the year, further evidencing that our professional and personalized services as well as higher quality tailored solutions have been well-recognised by customers. Pricerite will continue to develop all aspects of smart and flexible home furnishing solutions to better serve our customer needs.
With a clear aim to enhancing both the aesthetics and functionality of our products and to stimulate customer demand on stylish and functional items, Pricerite has during the year revamped a number of the core product ranges by bringing in new products, new designs as well as an expanded product range with different colors, sizes and forms.
Riding on the popularity of electronic platforms, Pricerite invested in various online channels during the year to better serve customers online. The official Pricerite E-shop for Hong Kong has caught immediate attention since its launch in the first half of the year and has contributed to our growing sales revenue. During the year, the website was further upgraded by including a number of interactive and sorting features to enhance browsing and shopping experience.
Facebook page also supported our product promotion and customer interactions in an effective way. Different theme-based online and offline campaigns during the year attracted a number of participants to visit regularly and helped to build our brand awareness.
Rewards & Recognitions
Pricerite was committed to providing customers with excellent services. During the year, several honorable accolades were received. Our well-trained salespersons have stood out amongst the keen retail practitioners, winning not only the Outstanding Young Salesperson Award 2012 organized by HKMA but also the HKRMA's Service & Courtesy Award, the “Oscars Award” in the retail industry in Hong Kong.
Besides, Pricerite won the Manpower Developer Award Scheme 2012, Family-Friendly Employers Award 2012 and Customers' Most Favorable Hong Kong Brands Award 2012, organized by the Employees Retraining Board, the Family Council and the China Enterprise Reputation and Credibility Association.
In China, our retail brand 生活經艷has gradually built up the brand awareness amongst our target customers, mainly young and mid-income professionals in Guangzhou. In addition to existing retail outlets, we have organised a number of road shows during the year to promote and increase public awareness of our brand. 生活經艷is also regularly covered in various media including newspapers, magazines and on-line channels to promote our positioning of modern home furnishing chain. 生活經艷 has also planned to develop e-commerce in 2013, to tap the fast expanding market opportunity in China.
Business Outlook - For the year ended December 31, 2012
Financial Services Business - FSG
In the year of 2012, the Eurozone debt crisis and the US fiscal cliff had been looming over the global economy. Looking ahead to 2013, the economic outlook still hinges to a large extent on the development in the European and US markets.
Whilst the external environment remains uncertain, the outlook for the Asian markets looks more optimistic. Asian economies, particularly mainland China, are expected to recover more swiftly from the present soft patch and grow more forcefully than the developed countries. With its strategic role, Hong Kong continues to benefit from such development and progression.
In Hong Kong, while inflation has bottomed during the last year, renewed capital inflows and further asset market rallies pose upside risk to the inflation outlook to the year ahead. Coupled with the rebound in China's grain prices, persistent strength in RMB against Hong Kong dollar and rising rental and property prices, inflation is expected to edge higher in the coming year.
With the completion of US and Chinese political transitions, growth in the economies showed a clearer sign of picking up. Intensified by demand recovery and expected appreciation of Asian currencies, capital inflows to Asia have significant room for acceleration. Quantitative easing measures of various economies were launched in 2012. Accommodative region-wide monetary and fiscal policies were in place throughout 2012. Fears of US “Fiscal Cliff” was eventually fading in the end of 2012.
We are cautiously optimistic about the economic outlook in the medium term. We see potential opportunities available to financial institutions in Hong Kong. The year-end robust rally in stock market indices signaled an improving economic condition. Coupled with rising risk appetite, positive fund flows and structural reforms, we expect to see a higher return in 2013. With the expected money inflows into Asia, we envisage to see a further growth in the stock performance. We will continue to expand our client base and provide comprehensive financial solutions from a global perspective to our clients. On top of our established services in the PRC, we will continue to look for strategic opportunities with business partners and adopt a proactive approach in order to capitalise the opportunities ahead.
To cope with the growing complexity of the capital market, Hong Kong is looking to adapt to the low latency network and to retain its role as one of the world's most established financial centres. To remain competitive and relevant in an increasingly interconnected global equities market driven by technology-based trading strategies, we will continue to develop and enhance our IT infrastructure in order to stay compatible with market changes.
Alongside the clear approach of the Hong Kong Stock Exchange in developing advanced trading platform to commensurate with the increasing demand for more efficient and speedy executions, we dedicated our resources in IT infrastructure and trading platform development in order to capture the valuable opportunities in the market and to meet with the versatile needs of our clients in Hong Kong and mainland China. We believe that high-speed, reliable and technologically advanced platforms are still highly sought by investors. We are committed to investing in our IT infrastructure and enhance the comprehensiveness of products to our clients.
2012 saw a slowdown in the IPO activities in Hong Kong at the back of intense competition from other bourses. The last quarter of 2012 however showed signs of recovery and is expected to continue in the coming year. The recent relaxation of the H-share listing requirements for mainland companies would be expected to spur some of the A-share IPO applicants to switch to list in Hong Kong. Hong Kong would continue to be a major fundraising hub for Chinese mainland companies and we expect to see a wave of small and medium-sized mainland enterprises and international companies seeking access to additional funding by securing a listing status in Hong Kong. Going forward, we continue to position our investment banking group as specialist in small and medium enterprises. We will continue to build up our brand name and gain wider prominence and recognition in our investment banking services.
With the growing sophistication of the capital market, we are constantly looking for educated and internationally oriented workforce. We are able to attract professionals from around the globe. They include scholars and professors with different backgrounds and qualifications. The mix of academic specialists has brought an inspiring enhancement to our trading models and infrastructure development. With the dedication of our professional workflow, we will continue to develop our advanced and high technology trading strategies and to capture each and every opportunities present in the market.
Retail Management Business - CRMG
In 2013, the economy of Hong Kong will continue to encounter different challenges and opportunities. We will continue to reinforce the Living Smart 生活智慧brand attribute and to secure the leading position in home-furnishing retailer in town. On the other hand, gradual increase in housing supply by the government to meet overwhelming demand is expected to create continuous and vast demand in better home furnishing solutions. Pricerite is ready to capture the business ahead.
Source: CASH Fin Ser Gp (00510) Annual Results Announcement
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