Chairman's Statement

I take great pleasure in presenting my report to the shareholders:

Results

The Group's profit after taxation and minority interests for the year ended 30th June 1997, was HK$14,160 million, an increase of 28.3 per cent over last year's profit of HK$11,039 million. Earnings per share for the year was HK$5.93, representing an increase of 26.4 per cent compared with HK$4.69 for the previous year.

Dividends

The directors have recommended the payment of a final dividend for the year ended 30th June 1997, of HK$1.65 per share. Together with the interim dividend of HK$0.70 per share, total dividend for the full year is HK$2.35 per share, representing an increase of 26.3 per cent over the previous year. In view of the satisfactory results, the directors have also recommended the payment of a special cash bonus of HK$0.38 per share. Total dividend and special cash bonus for the full year amount to HK$2.73 per share.

Sales

During the year ended 30th June 1997, total property sales generated by the Group, both as principal and as agent, amounted to HK$22,709 million, an increase of 48 per cent over the previous year. Major projects marketed during the period included Villa Tiara in Tuen Mun, King's Park Villa in Ho Man Tin, No. 3 Repulse Bay Road, East Point City in Tseung Kwan O, Parkside Villa in Yuen Long and Royal Sea Crest in Sham Tseng. Almost all units offered for sale in these projects have been sold. The above sales amount does not include Villa Esplanada Phase 1, in which the Group holds a 22.5 per cent interest, which generated HK$4,693 million in sales.

New Sites

Since the last financial year, the Group has added 11 new sites to its land bank through acquisition, joint venture, agricultural land conversion and use of Letter B land exchange entitlements. The sites have a total attributable gross floor area of 8.8 million square feet.

Review

The Group's various business activities performed satisfactorily in the year under review. The Group's main business activities are as follows:

Property Development

Eleven projects were completed during the year, with a total gross floor area of 6.5 million square feet, of which 4.2 million square feet is residential space and the remainder is shopping centre, office and hotel space. All residential properties completed during the year were virtually fully sold. The Group has retained Grand Century Place in Mongkok, East Point City shopping centre in Tseung Kwan O, 51 & 55 Deep Water Bay Road and Comet Commercial Building in Cheung Sha Wan for long-term investment.

The Group's current land bank in Hong Kong amounts to a gross floor area of 50.9 million square feet, including 17.3 million square feet of completed investment properties and 33.6 million square feet of properties under development. This excludes the Group's holding of 18 million square feet of agricultural land in the New Territories, the majority of which is in the process of land use conversion. The Group's land bank is expected to continue to grow in the coming years to cater for future development needs.

Investment Properties

The Group's investment properties are virtually fully let. The Group's gross rental income for the year under review amounted to HK$4,931 million, representing an increase of 12 per cent over the previous year. The Group's investment property portfolio is expected to continue to grow in the coming years and rental income will maintain satisfactory growth. In addition, both Grand Century Place and East Point City shopping centre will open for business shortly and will contribute annual rental income of HK$540 million.

Grand Century Place, located at Mongkok KCR station, was completed during the year. The project includes 1.6 million square feet of office, shopping centre and hotel space, of which more than 95 per cent of the shopping centre and office space has already been leased out. The entire shopping centre will be open for business shortly.

The first phase of the Airport Railway Hong Kong Station Development in Central will be completed in late 1998. This includes 784,000 square feet of office space and 131,000 square feet of shopping space. The Group holds a 47.5 per cent interest in the project.

Millennium City in Kowloon East will provide 3 million square feet of Grade A office space and a major shopping centre. Given its superior quality and advanced facilities, it will set a new standard in the area. Once the entire project is completed, it will be the area's largest commercial development and will help Kwun Tong develop into a regional commercial hub.

Hotel Business

The Group's hotels recorded strong results, with the Royal Garden and the Royal Park achieving average occupancy rates of 95 per cent and 92 per cent respectively during the year and satisfactory increases in average room rates.

The Group's third hotel, the Royal Plaza, which is part of Grand Century Place in Mongkok, has a total of 672 rooms and opened for business recently. In addition, the Group recently won the development rights for hotels at the Airport Railway Olympic Station and will develop two hotels with a total of 1,100 rooms in a joint venture with the Mass Transit Railway Corporation.

Despite a recent decline in the number of visitors to Hong Kong, the increasing number of international conferences and exhibitions to which Hong Kong is scheduled to play host and the opening of the new airport next year will give further impetus to the tourism industry. In the long term, future prospects for the hotel sector remain positive.

Infrastructure and Transportation

The mobile phone business of SmarTone Telecommunications Holdings Limited has continued to show strong growth and the company now has more than 400,000 subscribers, with the number of subscribers having increased by more than 90 per cent per year for the past three years. Despite a highly competitive market, average monthly revenue per user increased during the year. SmarTone was listed on the Stock Exchange of Hong Kong in October 1996. For the year ended June 1997, the company achieved profit of HK$789 million, an increase of 109 per cent over the previous year. SmarTone will continue to meet its customers' needs through an ongoing programme of strengthening customer service, enhancing network quality and expanding its range of value-added services.

The construction of Route 3 (Country Park Section) is progressing smoothly, within budget and ahead of schedule. Breakthrough of the 3.8-kilometre Tai Lam Tunnel took place in July this year and the route is now scheduled to open to traffic in mid-1998.

The Airport Freight Forwarding Centre at the new airport is on schedule and it will be ready to go into operation next year when the new airport opens. More than 70 per cent of the centre's cargo handling space has already been leased out.

Construction of the River Trade Terminal in Tuen Mun, in which the Group holds a 33 per cent interest, is under way. The first operating area of the first phase will be finished in late 1998 and the entire project is scheduled for completion by the end of 1999. Total investment in this project is HK$6 billion. Recently, project financing was successfully arranged in the amount of HK$4.2 billion.

The Kowloon Motor Bus Company (1933) Limited recently had its franchise renewed for another ten years. In early October, the company announced a proposed corporate restructuring to cope with future development needs by setting up a holding company that will take the place of the existing listed company. The holding company will have a number of subsidiaries which will be separately responsible for different business segments.

Mainland China Business

The Group continues to take a prudent and gradual approach to investing in mainland China, focusing on Beijing, Shanghai and Guangzhou, and mainly on property development projects to be retained for rental purposes.

Sun Dong An Plaza in Beijing will be completed by the end of this year and the shopping centre has been launched for lease with 80 per cent of space already pre-let. Leasing of the office space will begin soon. The 560 units in the first phase of Glorious City Garden (formerly New Town Plaza), in Guangzhou, have all been sold and construction of the second phase is under way. The Group holds a 30 per cent interest in this development.

Prospects

With the smooth reunification of Hong Kong with China on 1st July 1997, and the establishment of Hong Kong Special Administrative Region, "one-country, two-systems" and "the government of Hong Kong by the people of Hong Kong" have been realised. Confidence in Hong Kong's future has been strengthened. The economy remains prosperous, employment opportunities are increasing and the unemployment rate is falling. The recent financial crisis in Southeast Asia has led to the devaluation of currencies in the region. Hong Kong's economic foundations, however, are strong. Hong Kong's healthy monetary system and substantial foreign exchange reserves, coupled with the backing of China, contribute to the stability of Hong Kong's investment market and currency. Closer economic relations between Hong Kong and mainland China will further reinforce Hong Kong's status as an international centre for finance and commerce.

With the rapid economic development and low inflation in mainland China, and following the 15th Party Congress, a strategic plan has been mapped out for the social and economic development of mainland China into the next century, and the policy of reform and opening has entered a new stage. These factors, and the stable interest rates in the United States, all contribute to the positive prospects for the future of Hong Kong's economy.

In view of the low interest rates, rising incomes and the growth of confidence in Hong Kong's future, the property market is expected to remain active. In the long run, the Government's plan to increase land supply will help to balance supply and demand and stabilise property prices. An increase in the supply of residential units will also provide the Group with more business opportunities.

In order to alleviate the short-term supply problem and stabilise property prices, the Government could consider allowing a longer pre-sale period which would increase the supply of units available for sale. The shortage in supply of new units has been the driving force behind the significant increase in property prices in recent years and I support the Government's policy of increasing land supply rather than taking short-term administrative measures.

In the long term, a growing population, rising household incomes and higher aspirations for housing will continue to generate an enormous demand in Hong Kong's property market, and I am cautiously optimistic about the prospects for the residential market.

The Group will continue its ongoing policy of focusing on property business in Hong Kong, reducing risk through diversification in property location and usage. The Group's long-term goal is to achieve an equal balance between profit from property sales and recurrent income. The Group will continue to expand its portfolios of investment properties and infrastructure projects in Hong Kong and rental properties in mainland China in order to strengthen recurrent income.

The Group owns a large land bank which will be sufficient for its development needs over the next five years. Land costs are substantially below current market prices, providing solid protection for future profits. The Group will continue its existing policy of expanding its land bank mainly through the conversion of agricultural land and entering into joint ventures. At present, the majority of the Group's industrial sites are planned to be put under application for conversion into commercial, office, hotel or industrial/office use. It is expected that properties to be completed in the coming year will have a gross floor area of 4.2 million square feet, of which 3.9 million square feet will be residential. The Group remains committed to developing high-quality properties and to making continuous improvements to design, materials, construction and recreational facilities in order to satisfy the needs of its customers.

The Group also places great emphasis on facilitating communication with customers and providing superior customer services. SHKP Club was established for these purposes and now has 40,000 members. The Group's two property management subsidiaries, Kai Shing Management Services Limited and Hong Yip Service Company Limited, provide high-quality management services for the Group's properties. Both Kai Shing and Hong Yip recently received ISO 9002 quality certification, and both companies were also once again awarded Hong Kong Housing Authority Best Property Management Agent Awards.

To cope with future business expansion needs, and act in line with the Government's target of 85,000 new residential units per year, the Group will need to build on its strong organisation and experienced team of staff by continuing to enlarge its management base and manpower, and by upgrading its high-quality workforce through training. The Group will also continue to increase its community, charitable and environmental activities, and will work to improve the cityscape and provide better living environments.

The Group's finances are very healthy. Rental and other sources of recurrent income bring in substantial cash revenues. Properties to be launched for sale in the next few months, including Symphony Bay in Sai Sha, Chelsea Heights in Tuen Mun and Chateau Royale in Tai Po, will also generate considerable cash flow for the Group. In May 1997, the Group was successful in procuring a 7-year HK$10.8 billion revolving credit/term loan facility to lengthen the Group's loan maturity profile in line with long-term investment needs. In future, the Group will continue to diversify its funding base. Also in May, Standard & Poor's upgraded both Hong Kong's and the Group's foreign currency rating to A+. The Group will continue to adopt a conservative financial policy and maintain a low gearing. The Group's borrowings are unsecured and are hedged against foreign exchange risks.

1997 is a year of enormous significance, both for Hong Kong and for the Group. It is the year in which Hong Kong was reunified with China, and is also the 25th anniversary of Sun Hung Kai Properties' public listing. Over the years, the Group has become known in the market for the quality of its properties and is held in high regard for its prudent and progressive management style. This strong reputation is the result of the cooperation and efforts of all of the Group's staff. At the beginning of this new era, the Group will continue to seek opportunities for further business growth and endeavour to contribute to Hong Kong's economic development.

Almost all marketed residential units which are scheduled to be completed next year have been sold. Given that Hong Kong's residential property market is expected to remain active, barring unforeseen circumstances, the Group's results for the coming year will show satisfactory growth.

I take this opportunity to express my gratitude to my fellow directors for their guidance and to all staff for their dedication and hard work.

Kwok Ping-sheung, Walter
Chairman & Chief Executive

Hong Kong, 8th October 1997

© Copyright 1996-2012 irasia.com Ltd. All rights reserved.

DISCLAIMER: irasia.com Ltd makes no guarantee as to the accuracy or completeness of any information provided on this website. Under no circumstances shall irasia.com Ltd be liable for damages resulting from the use of the information provided on this website. TRADEMARK & COPYRIGHT: All intellectual property rights subsisting in the contents of this website belong to irasia.com Ltd or have been lawfully licensed to irasia.com Ltd for use on this website. All rights under applicable laws are hereby reserved. Reproduction of this website in whole or in part without the express written permission of irasia.com Ltd is strictly prohibited. TERMS OF USE: Please read the Terms of Use governing the use of our website.