Financial Statement Announcement for 3rd Quarter ended 30 September 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-over. Consequently, quarterly results may not be a good indication of profitability trend.
For the 9 months and quarter ended 30 September 2018
Revenue for 3QFY2018 declined by 53.5% Y-o-Y or RMB168.4 million, to RMB146.2 million (3QFY2017: RMB314.6 million). The decline was due to a decrease in sales of properties by RMB169.2 million, mainly attributable to fewer residential units at Lion City Garden, commercial units at Ying Li International Electrical and Hardware Centre ("Ying Li IEC") and other previously completed commercial properties handed-over in the quarter. Rental income increased by 1.6% Y-o-Y or RMB804k to RMB51.2 million, mainly due to gradual increase in occupancy rates at the rented properties.
Gross profit for 3QFY2018 decreased by 30.3% Y-o-Y or RMB28.7 million, to RMB66.2 million (3QFY2017: RMB94.9 million) in tandem with the decrease in revenue. The decrease was mainly attributable to the lower gross profit contribution from Sales of Properties segment which decreased by RMB30.6 million, offset by a 4.3% Y-o-Y increase in Rental Income segment's gross profit.
Gross profit margin
Overall gross profit margin for 3QFY2018 increased by 15.0 percentage point, to 45.2% (3QFY2017: 30.2%), primarily due to higher proportion of gross profit contribution from Rental Income segment which has a higher gross profit margin.
Other income for 3QFY2018 decreased Y-o-Y mainly due to decrease in interest income as a result of withdrawal of pledged fixed deposits to financial institutions and others.
Selling expenses for 3QFY2018 increased by RMB5.9 million, to RMB22.0 million (3QFY2017: RMB16.1 million), mainly due to increase in property management expenses, and advertising and promotion activities expenses.
For 3QFY2018, administrative expenses decreased by RMB5.2 million, to RMB26.2 million (3QFY2017: RMB31.4 million), mainly due to lower staff related costs, legal and professional fees, partially offset by unrealised foreign exchange losses arising from revaluation of foreign currency liabilities.
The increase in finance costs of RMB27.2 million to RMB54.1 million for 3QFY2018 (3QFY2017: RMB26.9 million), is mainly due to the termination of finance costs capitalisation upon disposal of Ying Li International Commercial Centre from 4QFY2017 onwards.
For 3QFY2018, taxation expenses decreased by RMB16.0 million as compared with 3QFY2017. This was in tandem with the decrease in profit before income tax.
(Loss)/Profit attributable to ordinary shareholders of the Company
For 3QFY2018, the Group reported loss attributable to the ordinary shareholders of the Company amounting to RMB31.9 million, mainly due to lower gross profit and increased in finance costs as termination of finance costs capitalisation upon disposal of Ying Li International Commercial Centre from 4QFY2017 onwards.
Statement of Financial Position
Total Assets of the Group decreased by 10.4% or RMB1,154.6 million, to RMB9,932.5 million (31 December 2017: RMB11,087.1 million), mainly due to a net decrease in trade and other receivables of RMB1,134.4 million arising from partial collection of divestment proceeds in April 2018 from a subsidiary disposed in 4QFY2017 and development properties of RMB279.0 million, offset by an increase in cash and cash equivalents of RMB 263.2 million.
The Group's total liabilities decreased by 16.6% or RMB962.0 million, to RMB4,831.4 million (31 December 2017: RMB5,793.4 million), mainly due to a decrease in bank loan of RMB466.8 million and trade and other payables of RMB466.0 million.
The Group's total equity decreased by RMB192.6 million to RMB5,101.1 million (31 December 2017: RMB5,293.7 million), mainly due to a decrease in retained profits of RMB141.8 million and an increase in exchange fluctuation deficit of RMB49.0 million.
Statement of Cash Flow
For 3QFY2018, the increase in unrestricted cash and cash equivalents of RMB64.4 million was mainly due to:
- net cash outflow of RMB79.1 million from operating activities; and
- net cash inflow of RMB143.5 million from financing activities.
The net cash outflow from operating activities of RMB79.1 million was mainly attributable to a decrease in trade and other payables of RMB128.0 million, an increase in trade and other receivables of RMB49.1 million, and a net interest and income tax paid of RMB45.8 million. This was partially offset by cash generated from operating profit of RMB73.6 million and a decrease in development properties of RMB70.2 million.
Net cash generated from financing activities of RMB143.5 million includes a decrease in cash collaterals pledged of RMB165.6 million, and offset by repayment of borrowings RMB 22.1 million.
Commentary On Current Year Prospects
According to Chongqing Statistics Bureau, Chongqing's GDP grew at 6.3% Y-o-Y in YTD 3Q2018 and reached RMB1,477.3bn. This growth rate is below both the national's YTD 3Q2018 Y-o-Y growth rate of 6.7% and the 6.5% Y-o-Y growth rate Chongqing achieved in 1H2018. 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 3Q2018, there was no new supply of grade A office was added to the market. With net absorption at 64,800 sqm, the vacancy rate of grade A office dropped by 2.5 ppt. While Jiefangbei CBD continues to be the preferred location for overseas companies among all the business district in Chongqing, CBDs in Guanyin Qiao, Jiangbeizui, Zhaomu Shan and Xin Paifang are also developing fast.
(Source: CBRE, Chongqing Property Market Report 3Q 2018)
Chongqing Retail Market
In 3Q2018, 60,000 sqm of new supply added to the market, compared with 378,000 sqm added in 1H2018. With the net absorption at 23,200 sqm, the vacancy rate declined marginally. The prime retail submarkets continue to be Guanyin Qiao and Jiefangbei, with new submarkets emerge at Danzishi, Yubei and Dahua precincts. During the period, the existing malls continue to proactively adjust their tenant max in reaction to continued new supply and increased in number of local tourists visiting Chongqing, by bringing popular elements, with themed shopping space and flexible opening hours. These new tenants mainly concentrate on Retail (fashion, accessories & jewelry, sports related, Cosmetics & Personal Care), F&B (particularly those with family centric theme) and Lifestyle (education & training, beauty, recreation & Sports, health & medical service etc).
(Source: CBRE, Chongqing Property Market Report 3Q 2018)
The Group currently has two projects under-development, Lion City Garden and Ying Li International Hardware and Electrical Centre (IEC). The Lion City Garden is at the final phase of development, Phase 2D, and the bespoke development IEC is progressing in accordance with plans. The first and second batch of IEC buyers are renovating their shops and progressively conducting businesses at the centre. As of end 3Q2018, there was about 15% of the shops in IEC already opened for businesses.
On the retail front, the Group continues to optimize and/or sharpen its focuses on targeted consumers at both Ying Li IMIX Park Jiefangbei mall and Ying Li IMIX Park Daping mall. Firstly, with the high occupancy rates in the excess of 90%, both malls had 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 with higher proportion of space allocated to 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 consist mainly two office towers and part of retail podium, has reached level 13 and level 3 of the office tower respectively as of end Sep 2018. Phase 3 construction, which consist one premium office tower and remaining part of the retail podium, is at the piling foundation work.
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 Group's financial performance. 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.