Financial Statement Announcement for 3rd Quarter ended 30 September 2017
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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‐over. Consequently, quarterly results may not be a good indication of profitability trend.
For the nine months and quarter ended 30 September 2017
Revenue of the Group from the Sale of Properties increased by RMB62.5 million (31.0%) to RMB264.1 million as compared with 3QFY2016. The increase was mainly driven by the sales of existing units from completed projects, Investment properties, as well as from the continued handover of the residential units at San Ya Wan Phase 2 project and commercial units at Ying Li International Electrical and Hardware Centre ("Ying Li IEC") Phase 1A and 2A.
Rental income increased marginally by RMB1.0 million (2.1%) as compared to the same period last year. The overall increase is a net result of increase in rental income from its retail malls, offset by the loss of rental income from the Investment properties sold.
Gross profit of the Group for 3QFY2017 increased by RMB34.6 million (57.4%) to RMB94.9 million as compared to the same period last year. The mix of properties that were sold and handed over in 3QFY2017 have higher gross profit as compared to that from the high‐rise residential units at San Ya Wan Phase 2 handed over in 3QFY2016.
Gross profit margin
The Group's gross profit margin for 3QFY2017 increased by 6.2 percentage points to 30.2%. Gross profit margin from Sale of Properties increased as the mixture of properties that were sold and handed over in 3QFY2017 tend to have higher gross profit margin as compared to the high‐rise residential units at San Ya Wan Phase 2 handed over in 3QFY2016 where the gross profit margin was lower.
The year‐on‐year increase in Other Income was mainly due to higher interest income from deposits placed with financial institutions and others.
Selling expenses decreased marginally by RMB4.6 million (22.2%) in 3QFY2017 to RMB16.1 million as compared to 3QFY2016, mainly due to lower sales and marketing related expenses, and lower property management expenses..
During the quarter under review, Administrative expenses increased by RMB5.2 million (19.6%) to RMB31.4 million in 3QFY2017. The increase was due to higher staff related costs and fees paid to financial institutions for new loans drawn down.
For the quarter under review, Finance costs were RMB2.6 million (10.7%) higher as compared to 3QFY2016. The increase was mainly due to a lower amount of interest being capitalised. Interest expense directly attributable to projects would generally be capitalised as part of the project costs.
During the quarter under review, current income tax expense increased by RMB13.1 million (258.8%) as compared with 3QFY2016 mainly due to higher taxable profits generated from the sale of properties in 3QFY2017.
Profit attributable to ordinary shareholders of the Company
Overall, net profit attributable to the ordinary shareholders of the Company increased by RMB17.2 million.
Statement of Financial Position
Total Assets of the Group decreased by RMB248.2 million to RMB11.6 billion during the period under review mainly due to a decrease in cash and cash equivalents of RMB194.9 million, and a decrease in Development properties of RMB192.9 million. The cash was mainly used in the repayment of interest and principal of outstanding loans, progress payments for the construction of the projects and distribution on perpetual convertible securities, and the decrease in development properties was mainly arising from the handover of completed properties to purchasers. This was off‐set by i) an increase in deposits placed with government agencies for land tenders amounting to RMB41.2million; ii) an increase in prepayments of RMB91.4 million which was mainly due to prepaid taxes for the pre‐sales at the Ying Li Lion City Garden and Ying Li International Electrical and Hardware projects, transfer to sinking funds in accordance with prevailing government regulations upon the handover of the Ying Li Lion City Garden project and loan upfront fees paid to financial institutions in accordance with loan agreements; and iii) an increase in refundable deposits of RMB14.2 million arising from deposits paid to a financial institution pursuant to a loan agreement.
The Group's total liabilities decreased by RMB199.1 million to RMB6.6 billion during the period under review. The decrease in liabilities was mainly due to i) a reduction in borrowings amounting to RMB150.5 million due to repayment of loans; and ii) a decrease in trade and other payables of RMB48.0 million mainly due to progress payment made for construction costs.
The Group's total equity decreased by RMB49.0 million to RMB5.01 billion during the period under review, mainly due to i) a reduction in Retained profits mainly due to the payment of distributions on the Perpetual Convertible Securities; and ii) a decrease in the Exchange fluctuation reserve because of RMB devaluation in FY2017. 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 RMB34.3 million for the quarter under review was mainly due to:
- net cash inflow of RMB100.8 million from operating activities; and
- net cash outflow of RMB66.0 million from financing activities.
The net cash inflow from operating activities of RMB100.8 million was mainly attributable to cash generated from operating profit of RMB51.3 million, an increase in trade and other payables of RMB29.4 million mainly due to an increase in accrued expenses and advance payment from customers and a decrease in development properties of RMB108.1 million arising from the handover of completed units. This was off‐set by i) an increase in trade and other receivables amounting to RMB81.6 million due to an increase in trade receivables, prepayment on prepaid taxes for the pre‐sales at the Ying Li Lion City Garden and Ying Li International Electrical and Hardware projects, and loan upfront fees paid to financial institutions in accordance with loan agreements; and ii) net interest and income tax paid of RMB9.8 million.
Net cash used in financing activities of RMB66.0 million includes a net decrease in borrowings of RMB27.1 million mainly due to the repayment of loans. This is off‐set by an increase in cash collaterals pledged to financial institutions to secure loan facilities amounting to RMB38.9 million.
Commentary On Current Year Prospects
According to Chongqing Statistics Bureau, Chongqing posted a GDP growth of 10.0% Y‐o‐Y to RMB1,430.9 billion in 3Q2017. The city's steady double digit growth outpaced the country's overall 6.9% Y‐o‐Y GDP growth and far eclipsed other fast‐growing cities in the People's Republic of China ("PRC"). Underpinned by the city's positive economic development, Chongqing's disposable income per capita grew by 8.7% Y‐o‐Y to RMB24,834 while total retail sales of consumer goods expanded by 11.0% Y‐o‐Y to RMB585.7 billion in 3Q2017.
Chongqing Office Market
In 3Q2017, office demand continued to gain momentum from the previous quarter, driven by the finance and professional services sectors. Net absorption reached a two‐year high of 96,900 sqm, of which, 71,800 sqm were from Grade A office. In addition, only one project, a Grade A office, with a GFA of 66,000 sqm located in Jiangbeizui was added to the market which resulted in a drop in vacancy rate. Appealing to multinational corporations for its strategic and prominent location, Jiefangbei continues to record an average rental of above RMB100 per sqm per month for its Grade A office in 3Q2017, the highest amongst Chongqing's core business districts.
(Source: CBRE Q3 2017, Chongqing Property Market Overview)
Chongqing Retail Market
The overall retail market was relatively stable in 3Q2017. All of the four high quality prime retail projects being added to the market totaling 671,000 sqm are located in non‐core districts. With the relative scarcity of land in Chongqing's core districts, developers are looking to non‐core districts for new development. The location of all of the four new retail projects outside of core districts exemplifies the aforementioned trend. While market competition intensifies with the new entrants, repositioning and tenant mix adjustment for prime retail malls in core districts are taking hold. Net absorption for these malls was healthy at 8,300 sqm and vacancy rate dropped to 9.6% in 3Q2017. Apparel and F&B outlets remained as the key drivers of demand while several luxury brands debuted at both core and non‐core districts to capture the city's rising consumerism.
(Sources: CBRE Q3 2017, Chongqing Property Market Overview)
Chongqing Residential Market
Sales momentum continued in 3Q2017 with an increase of 4.5% Y‐o‐Y to 2,300 units sold. 3,100 units were launched in the market, comprising top‐quality projects which were priced above market rates. As a result, the average selling price of prime residential units in Chongqing rose at a fast clip by 46.6% Y‐o‐Y to RMB17,400 per sqm in 3Q2017. In alignment with the PRC's policy of ‘houses are for living in, not speculating on' and fueled in part by the price surge, Chongqing's government have imposed new purchase restrictions, a first in the city, to curb short‐term speculations in its evolving residential property market. With effect from 23 September 2017, owners who have purchased residential property are not allowed to sell their property within two years from the date of purchase.
(Source: JLL Research, Q3 2017 Chongqing Property Review)
Along with relative stable demand, sales transactions increased by 9.2% Q‐o‐Q in 3Q2017. With the influx of new supply and launch of lower‐than‐expected housing prices, the average sales price for Beijing's prime residential market declined by 2.6% Q‐o‐Q in 3Q2017. To further limit market speculation and curb price growth, the Beijing government introduced new property rights measures on 30 September 2017. Particularly, the new measures include common housing rights where buyers share property rights with government agencies to purchase properties at more affordable prices. Similarly, future land supply will also focus on common property rights and cater for hard core demand rather than high‐end residential properties which are for investment purposes.
(Source: JLL Research, 3Q17 Beijing Property Review)
In Chongqing, the Group remains steadfast on developing residential and bespoke projects at prime locations in the city. In accordance with its development plans, the handover for Phase 1A and 2A of the Group's build‐to‐order development Ying Li International Hardware and Electrical Centre is on track according to plan.
For the Group's retail malls, Ying LI IMIX Park Jiefangbei and Ying Li IMIX Park Daping, the Group is constantly monitoring and reviewing its tenant portfolio to stay relevant to customers' needs and expectations of their retail and dining experience. To that end, repositioning and tenant‐mix adjustments remain a priority in the dynamic marketplace for the Group in addition to enacting experiential retailing to draw consumers to the mall and away from e‐commerce.
In Beijing Tongzhou, pre‐sales for the SOHO blocks of the New Everbright Centre project remains healthy notwithstanding the upshot on the momentum over the past two quarters brought on by the cooling measures imposed in Beijing. Construction for the project is progressing as planned with handover set around late 2017 to 2018.
Given the present macro uncertainty and market volatility and keeping sight of our strategic goal, the Group remains committed to enhancing its presence in Chongqing and expanding to Tier 1 and fast‐growing Tier 2 cities while maintaining a watchful eye on market conditions and risks.