Interim Results
The Group's unaudited profit after tax and minority interests for the half year ended 31st December, 1995 was $5,149 million, an increase of 5 per cent over the corresponding period of the previous year. Earnings per share was $2.22, an increase of 5 per cent over the same period last year.
Dividend
The directors have declared an interim dividend of $0.60 per share, representing an increase of 3.4 per cent over last year's $0.58 per share. The dividend will be payable on 18th April, 1996 to shareholders whose names appear on the Register of Members of the Company on 18th April, 1996.
Share Placement
On 9th January, 1996, arrangements were made for a private placement with independent investors of 65,000,000 shares of the Company at a price of $62.125 per share. A total of $3,950 million (net of expenses) was raised for the Group, which is intended to be used for the payment of land premium and investment in infrastructure projects.
Review of Operations
During the six months to 31st December, 1995, total property sales generated by the Group, both as principal and as a agent, were $1,967 million, compared to $3,469 million for the same period last year. Property sales for the first two months of 1996 amounted to $2,277 million, due mainly to the very encouraging pre-sale results of Royal Palms in Yuen Long and Woodland Crest in Sheung Shui.
Completion of properties in the first half and expected completion in the second half of the current financial year are analysed as follows:
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| First half year | ||||
| For sale |
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| For investment |
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| For sale |
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| For investment |
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* less than 0.1 million square feet.
During the first half of the financial year, the following projects were completed:
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| Royal Ascot Phase I | Sha Tin Town Lot 411 |
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| Meadowlands Phase I | Tan Kwai Tsuen, Yuen Long |
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| The Harbourview | 11 Magazine Gap Road |
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| Coronet Court | Hung Shui Kiu, Yuen Long |
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| Technology Plaza | 651 King's Road |
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| Yan's Tower | 25 Wong Chuk Hang Road |
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| APEC Plaza | 49 Hoi Yuen Road, Kwun Tong |
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| Billion Trade Centre | 31 Hung To Road, Kwun Tong |
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| Silicon Tower | 82-88 Larch Street, Tai Kok Tsui |
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| Advanced Technology Centre | Fanling Sheung Shui Town Lot 148 |
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Almost all properties for sale completed in the first half of the year have already been sold. The Group has retained its portion of the Harbourview for investment. In addition, out of a total of 0.8 million square feet of industrial properties completed during this period, 0.6 million square feet are kept for rental purposes, with encouraging leasing results. APEC Plaza and Billion Trade Centre are virtually fully let. Most of the remaining 0.2 million square feet of industrial properties have been sold.
Since the beginning of this financial year, the Group has added the following 5 sites, with an aggregate attributable gross floor area of 3.8 million square feet, to its land bank through land use conversion, joint venture and land auction.
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| Lam Tei, Tuen Mun | Residential |
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| Liu To, Tsing Yi | Residential |
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| Ngau Tam Mei, Yuen Long | Residential |
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| Hong Kong Oxygen Plant, Tseung Kwan O | Residential |
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| KIL 11084, Hung Hom | Residential/
Commercial |
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| Total |
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The Group currently owns a land bank of 43.4 million squar4e feet in terms of attributable gross floor area in Hong Kong, consisting of 14.7 million square feet of completed investment properties and 28.7 million square feet of properties under development. On top of this buildable land bank, the Group also owns sizeable agricultural land spreading throughout the New Territories. Application is being made for the conversion of land use of some sites to permit development.
The $300 million refurbishment of the World Trade Centre in Causeway Bay was completed in late 1995. The shopping centre has been fully let, contributing an annual rental income of $100 million to the Group. The refurbishment of the Sun Arcade at Tsim Sha Tsui is now under way and will be completed in June this year. More than 90 per cent of the space has been let. In an effort to enhance rental value, the Group will continue to upgrade regularly its investment properties through renovation programmes.
The Group will continue to expand its investment property portfolio. Investment properties under development amount o 3 million square feet, which include the shopping centre of the East Point City in Tseung Kwan O, KTIL 726 redevelopment in Kwun Tong, and several luxury residential projects in Island South. The Group's completed investment properties are virtually fully let. With the anticipated positive rental reversion and new investment properties to be completed over time, rental income is expected to continue to grow in the future.
With continued growth of visitor arrivals and the limited growth of the number of hotel rooms in the next two years, prospects for the hotel business remain optimistic. The Group's Royal Garden and Royal Park accomplished very satisfactory results. Both occupancy rates and room rates showed respectable increases.
On the infrastructure front, construction work for the Route 2 (Country Park Section) is proceeding smoothly as scheduled. It is expected to be completed by the third quarter of 1998. In February this year, an agreement on the Airport Freight Forwarding Centre project was signed with the Airport Authority. Construction has already commenced and the project will be completed in early 1998. Total project cost amount to $1.9 billion, of which $1.1 billion project financing has already been arranged, with the loan agreement to be signed shortly.
The digital mobile phone business of smarten did extremely well and has contributed to the Group's earnings. The number of subscribers has exceeded 170,000. smarten will invest $600 million this year in an effort to expand its business and network. The Group is very confident in SmarTone's future business prospects.
The group will continue to identify investment opportunities for infrastructure projects in Hong Kong in order to enhance further its recurrent income sources.
For investment in China, the Group continues to adopt a prudent and selective policy. Total investments in China will not exceed 10 per cent of the Group's assets. The currently committed projects, amounting to 3 per cent of the Group's assets, are mainly focused on major cities such as Beijing, Shanghai, and Guangzhou. Most retail and office developments will be retained for rental purposes.
Prospects
Hong Kong's economic fundamentals remain sound. With the unemployment rate showing signs of declining, consumer spending has also displayed some improvements on the back of recovering residential property prices and a buoyant stock market in recent months. The marco-economic adjustment measures implement4ed by China have been effective in improving economic developments and curbing inflation. This is also positive to Hong Kong's long-term economic growth.
The growth rates of both consumer price index and wage inflation in Hong Kong have slowed down recently. Rentals of all types of properties have come down to more acceptable levels. Lower costs should enhance Hong Kong's competitiveness as a centre for business, trade and finance in the Asia Pacific region. Lower global interest rates will also benefit the Hong Kong economy.
Since the anti-speculation measures were introduced by the Government in mid-1994, residential property prices have fallen by 30 per cent. Affordability for buyers has improved significantly as a result of cheaper prices and lower interest rates. This, together with banks adopting a more positive attitude towards mortgage lending, has led to an improvement in buying sentiment. Recently, residential prices have risen moderately and sale a activities have increased. The Government's intention of establishing a mortgage corporation in Hong Kong is welcomed as more mortgage funds will be available to home-buyers.
In view of a lower supply of residential flats in 1996, prices are expected to rise in the next 2 years. Population growth in Hong Kong will continue with the influx of immigrants from China and returnees from overseas. In the long run, due to strong housing demand and limited supply, the prospects of the residential property market in Hong Kong are promising.
The Group owns a large and cheap land bank which will be sufficient for its development needs in the next 5 years and will hence ensure future profitability. New opportunities are being sought in large-scale property development. The Group continues to raise the standards of its property projects in design, material, construction and recreational facilities. Great emphasis is also placed on after-sales services, with a one-year building guarantee provided to buyers of the Group's new residential properties. The objective of the recently established SHKP Club is to further improve communications and services to the customers.
The Group will continue its strategy of focusing on property business in Hong Kong and maintain a diverse portfolio of properties by usage and geographic location. Continuing efforts will be made to improve rental and other recurrent incomes in order to achieve the Group's long-term objective of an equal balance between property development profit and recurrent income.
The Group is in a strong financial position, with a low gearing and substantial recurrent income stream. The Group's liquidity will be further enhanced as large-scale projects such as Royal Ascot Phase II in Sha Tin, King's Park Villa in Kowloon, Ha Yau Tin in Yuen Long and East Point City in Tseung Kwan O are put on the market for sale in the next several months.
Most properties intended for sale and scheduled for completion in the current financial year have been presold. With a positive outlook for the Hong Kong property market and the Group holding a large and low-cost land bank, I am optimistic in the future prospects of the Group.
I wish to express my gratitude to my fellow directors for their guidance and all staff for their hard work and dedicated service.
Kowk ping-sheung, Walter
Chairman & Chief Executive
Hong Kong, 20th March, 1996.
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