CHAIRMAN'S STATEMENT

Interim Results

The Group's unaudited profit after tax and minority interests for the half year ended 31st December 1997 was $5,936 million, equivalent to an earnings per share of $2.48. Profit for the corresponding period of the previous year was $6,248 million, equivalent to an earnings per share of $2.61.

Dividend

The Directors have declared an interim dividend of $0.60 per share, compared with last year's interim dividend of $0.70 per share. The dividend will be payable in cash on 15th May 1998, to shareholders whose names appear on the Register of Members of the Company on 16th April 1998. To give shareholders the opportunity of increasing their investment in the Company's shares, they will be entitled to elect to receive a scrip dividend alternative. Particulars of the scrip dividend scheme will be mailed to shareholders on or about 17th April 1998, and elections will be required to be made by 7th May 1998.

For this interim period, the dividend payout ratio is slightly lower than in the past several years, and shareholders are also given a scrip dividend alternative. This is to enable the Group to preserve cash, so that it will be in a better position to invest in new development projects at the appropriate time.

Review of Operations

During the 6 months to 31st December 1997, total property sales generated by the Group, both as principal and agent, were $9,837 million, an increase of 2l.5 per cent compared to the same period last year. Major projects sold during the period include Botania Villa and Chelsea Heights in Tuen Mun and Grand Del Sol in Yuen Long. Property sales in the first two months of 1998 met with good response and totalled $7,809 million.

During the first half of the financial year, the following projects were completed:

More than 80 per cent of the residential properties completed in the first half of the year have already been sold. Of the residential projects to be completed in the second half of the year, almost all of the units in Botania Villa in Tuen Mun and Villa Esplanada Phase 1 on Tsing Yi Island have been sold, and over 70 per cent of the units in Villa Concerto in Symphony Bay have been sold. Due to the pace of construction, completion of Villa Rhapsody in Symphony Bay, originally scheduled for the second half of the year, will be postponed to the 1999 financial year. All units in Villa Rhapsody have been sold.

Completion of properties in Hong Kong in the first half, and expected completions in the second half of the current financial year are analysed as follows:

* under 100,000 square feet

Since the beginning of the current financial year, the Group has added two sites to its land bank through land use conversion and public tender. These sites have a total attributable gross floor area of 1.39 million square feet and are as follows:

The Group currently owns a land bank in Hong Kong of 50.9 million square feet in terms of attributable gross floor area, consisting of 17.3 million square feet of completed investment property and 33.6 million square feet of property under development. The Group also owns 19 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 investment properties are virtually fully let. The recent financial crisis in Asia has slowed down the leasing demand for properties in Hong Kong, and rents have been adjusted accordingly. As most of our shopping centres are located in major new towns supplying daily necessities to local people, the pressure for rent reductions is relatively low. While the leasing market has been generally slow, the Group's major shopping centres completed last year, East Point City in Tseung Kwan O, and Grand Century Place in Mongkok, are fully let. A moderate growth in the Group's rental income is expected in the current year. The Group will continue to provide quality services, and will increase promotional activities and further develop communications with tenants, to enhance the competitiveness of its shopping centres.

The Group will complete more than 2 million square feet of new investment property in the next three years. These projects include the Airport Railway Hong Kong Station Development, Phase 1, and Millennium City in Kwun Tong. Phase 1 of the Hong Kong Station Development includes a 38-storey office tower, providing 784,000 square feet of office space and 131,000 square feet of retail space. It will be completed in late 1998, and leasing has already begun. The Group holds a 47.5 per cent interest in the project. The first phase of the Millennium City development, comprising two office towers at 388 Kwun Tong Road, will provide 1.23 million square feet of grade A office space in East Kowloon upon completion in the second half of 1998. Over 300,000 square feet of office space has already been sold, and the remaining area will be retained as a long term investment. Once the entire project is completed, it will help Kwun Tong to develop into a regional commercial hub.

Due to the currency devaluations and economic downturn in most Asian countries recently, the performance of hotels in Hong Kong has been affected. The Group's three hotels have come under pressure with respect to room rates and average occupancy rates. During the period, the Royal Garden's and Royal Park's occupancy rates were 81 per cent and 75 per cent, respectively. In the long term, given the strategic location of Hong Kong and its position as the gateway to China, future prospects for the hotel industry remain positive. The Royal Plaza, which is part of Grand Century Place in Mongkok, opened for business in September 1997.

SmarTone announced a strong interim result for the period ended 31st December 1997. Since the company introduced its new rate structure in December 1997, the churn rate has improved and the number of subscribers has exceeded 460,000. SmarTone will continue to strengthen its network quality, comprehensive coverage and high quality customer service. SmarTone recently announced the acquisition of P Plus Communications Limited. The acquisition will increase SmarTone's network capacity and enable it to provide comprehensive mobile communications services to a wider range of customers, further strengthening its competitiveness. Since mobile communications are becoming more popular, and market demand is ever increasing, future prospects for SmarTone are promising.

Kowloon Motor Bus Holdings Limited has obtained ISO certification for all of its maintenance and service depots. The Company will continue to invest new resources to raise the quality of its services in Hong Kong. KMB will also expand its services with the establishment of 12 new routes linking the metropolitan areas with the new airport and Tung Chung.

Construction is progressing well on Route 3 (Country Park Section) and the River Trade Terminal in Tuen Mun. Route 3 (CPS) will be completed in mid 1998 and the first operating area of Phase 1 of the River Trade Terminal will be operational in the fourth quarter of 1998. The topping out of the Airport Freight Forwarding Centre took place recently and the centre will begin operations when the new airport opens in July 1998.

When the above infrastructure projects are completed, they will further increase the Group's recurrent income and improve its cash flow.

The Group will continue with its prudent, selective policy on investment in mainland China. Total investments on the mainland will be limited to less than ten per cent of the Group's assets, and will be concentrated in Beijing, Shanghai and Guangzhou. Property developments will mainly be retained as long term investments. Sun Dong An Plaza in Beijing was opened in January 1998. The 1.3 million square feet of retail space is fully let and 430,000 square feet of office space is being offered for lease.

Prospects

On 1st July 1997, Hong Kong was successfully reunified with China, and since then we have seen the "One Country, Two Systems" principle implemented and a high degree of autonomy for the territory. The recent National Peoples' Congress and Chinese Peoples' Political Consultative Conference emphasised China's commitment to strengthening economic reforms and further implementing the open-door policy. Long term economic prospects for China are positive and this will reinforce Hong Kong's position as a commercial and financial centre.

In the second half of 1997, most Asian countries saw a substantial devaluation in their currencies, which in turn brought pressure on the Hong Kong dollar peg. This caused inter-bank interest rates to rise and liquidity in the credit market to tighten. Recently, local interest rates have dropped significantly in relation to the highs of the past few months. With most other Asian economies expected to stabilise gradually, the prospect of lower mortgage interest rates in Hong Kong becomes more likely. I continue to have great confidence in the SAR Government s commitment to protecting the peg.

The Government's recently announced Budget has helped to stimulate the local economy. Given its solid economic fundamentals, sound banking system and strong foreign exchange and fiscal reserves, Hong Kong should be able to overcome the present difficulties.

Since October 1997, rising interest rates, tightened credit and fluctuations in economic confidence have led to an average decline of more than 30 per cent in Hong Kong residential property prices. The new Budget and the Government's adoption of a flexible approach to land sales to meet its long term housing target, coupled with improved affordability due to a reduction in prices, have led to Hong Kong's residential property market gradually becoming more active. Future supply over the next two years is expected to remain at average levels which are comparable to those of the past decade. In addition, the Government's mortgage tax relief measures for homeowners will assist property buyers. If interest rates remain stable and banks adopt a more flexible attitude towards mortgage lending, this will further help the propert market.

In the long term, with Hong Kong's growing population, rising household incomes and aspirations for a higher quality of living, the Group remains optimistic about the prospects for the residential property market.

The Group will continue to focus on property development in Hong Kong, reducing risk via the diversification of property usage and location. The Group's land bank is sufficient for its development needs over the next five years, providing a solid foundation for future profits. The Group will continue to increase its land bank selectively in order to expand its business.

The Group will continue to improve the quality of its properties and management services, and will promote communication with the public through the SHKP Club and the Group's Internet site.

The Group will continue with its conservative financial policies and maintenance of a low gearing. It has substantial undrawn credit facilities on a committed basis standing by for future business expansion. Almost all of the Group's borrowings are denominated in Hong Kong dollars. It has been the Group's policy to procure funding sufficient to meet its investment requirements well in advance. About half of the Group's credit facilities have a maturity of longer than 3 years. The Group's debt position will improve as a result of on-going property sales and effective cost control measures. A number of new projects will be launched for sale in the coming months including The Castello in Shatin, Hillview Court in Sai Kung, Chateau Royale in Tai Po and the development in Liu To on Tsing Yi Island. These will further strengthen the Group's cashflow position.

Most residential properties scheduled to be completed in the current financial year have been sold. 1998 will be a difficult and challenging year for the Group. However, given Hong Kong's solid foundations and sound financial condition, the territory's gradual economic recovery is expected before too long, bringing with it, new business opportunities for the Group.

Mr Clement Lo, the Group's Executive Director and Company Secretary, retired in February 1998, but will continue to act as one of the Group's Non-Executive Directors. He has served the Group for over 25 years and has made a substantial contribution to the Group's growth and the development of its business. On behalf of the Board, I would like to thank Mr Lo for his loyalty and valuable contributions to the Group.

I would also like to take this opportunity to express my gratitude to my fellow Directors for their guidance, and to all the staff for their dedication and hard work.

Kwok Ping-sheung, Walter
Chairman & Chief Executive

Hong Kong, 19th March, 1998

1997-98 INTERIM REPORT

The unaudited results of the Group for the half year ended 31st December, 1997 were as follows:

Notes: 1. Hong Kong profits tax is provided at the rate of 16% (1996: 16.5%) based on the estimated assessable profits for the period.

2. The calculation of earnings per share is based on the Group's profit after taxation and minority interests for the six-month period ended 31st December, 1997 of HK$5,936 million (1996: HK$6,248 million) and on 2,389.5 million shares (1996: 2,389.5 million shares) in issue during the period.

Additional Financial Information (Unaudited):

Note: Investment properties included in non-current assets are stated at market values as at 30th June, 1997 and 30th June,1996 respectively. Revaluation of investment property is only carried out annually at the financial year end.

Purchase, Sale or Redemption of Shares

The Company has not redeemed any of its ordinary shares during the half year ended 31st December, 1997. Neither the Company nor any of its subsidiaries has purchased or sold any of the Company's ordinary shares during this period.

Interim Dividend

The Directors of the Company announced an interim dividend of 60 cents per HK$0.50 ordinary share payable in cash on 15th May, 1998 to shareholders on the Register of Members as at 16th April, 1998.

Shareholders will be given the option of receiving the interim dividend by way of a scrip dividend in place of part or all of the cash dividend. Particulars of the scrip dividend scheme will be mailed to the shareholders on or about 17th April, 1998, and elections will be required to be made by 7th May, 1998. No actions will be required from shareholders who elect to receive all of their dividend in cash. For the purpose of calculating the number of new shares to be alloted, the price of the new shares will be an amount equal to the average last dealt price of one ordinary share on The Stock Exchange of Hong Kong Limited for the five consecutive trading days up to and including 23rd April, 1998. No discount will be allowed in the price of the new shares.

The Register of Members will be closed from 9th April, 1998 to 16th April, 1998, both days inclusive. In order to qualify for the above dividend, all transfer forms accompanied by the relevant share certificates must be lodged with the Company's Registrars, Central Registration Hong Kong Limited, Hopewell Centre, 17th floor, 183 Queen's Road East, Hong Kong for registration not later than 4:00 p.m. on 8th April, 1998.

By Order of the Board
ERNEST H.K. LAI
Secretary

Hong Kong, 19th March, 1998

DISCLOSURE OF INTERESTS

As at 31st December, 1997, the interests of the directors and chief executive of the Company in the equity securities of the Company as recorded in the register required to be kept under Section 29 of the Securities (Disclosure of Interests) Ordinance (the "Ordinance") were as follows:

Note 1 Messrs. Walter Kwok Ping-sheung, Thomas Kwok Ping-kwong and Raymond Kwok Ping-luen were deemed (by virtue of the Ordinance) to be interested in the number of shares in the Company shown opposite their names respectively. Of these numbers of shares 1,032,832,169 shares represent the same interests and are therefore duplicated amongst these three directors.

Other Associated Corporations

As at 31st December, 1997, the interests of the directors and chief executive of the Company in the equity securities of any associated corporation (within the meaning of the Ordinance) as recorded in the register required to be kept under Section 29 of the Ordinance were as follows:

(I) Each of Messrs. Walter Kwok Ping-sheung, Thomas Kwok Ping-kwong and Raymond Kwok Ping-luen had the following interests in the equity securities of the following associated corporations:

(II) Messrs. Walter Kwok Ping-sheung and Raymond Kwok Ping-luen had personal interests of 61,522 ordinary shares and 393,350 ordinary shares respectively in the equity security of. The Kowloon Motor Bus Holdings Limited.

(III) Messrs. Thomas Kwok Ping-kwong and Raymond Kwok Ping-luen had personal interests of 258,000 ordinary shares and 690,000 ordinary shares respectively in the equity security of SmarTone Telecommunications Holdings Limited.

(IV) Mr. Lee Shau-kee had other interests in the equity securities of the following associated corporations:

Note 2 These share in Mightypattern Limited and Star Play Development Limited were beneficially owned by Henderson Investment Limited ("HI")

The respective interests of Henderson Land Development Company Limited ("HL") and The Hong Kong and China Gas Company Limited (a company in which the subsidiaries of HI owned more than one-third of its issued shares) in Central Waterfront Property Holdings Limited were 32.5 per cent and 15 per cent respectively.

These shares in Newfoundworld Holdings Limited and Topcycle Development Limited were beneficially owned by HL.

These shares in Teamfield Property Limited were held by a company in which HL had a 50% interest.

Mr. Lee Shau-kee beneficially owned all the issued capital of Hopkins (Cayman) Limited. Hopkins (Cayman) Limited as the trustee of a unit trust owned all the issued ordinary shares which carried the voting rights in the capital of Henderson Development Limited ("HD" ). HD was the holding company of HL which was the holding company of HI.

By virtue of the provisions of the Ordinance and the matters aforesaid. Mr. Lee Shau-kee is taken to be interested in the shares and interests as mentioned hereinabove.

(V) None of the directors had any interests in any debt securities issued by the Company or any associated corporation.

(VI) As at 31st December, 1997, no rights to subscribe for equity or debt securities of the Company had been granted to any director or chief executive of the Company or to the spouse or children under 18 years of age of any such director or chief executive.

Substantial Shareholders

As at 31st December, 1997, the interests of every person, other than a director of chief executive of the Company, in the equity securities of the Company as recorded in the register required to be kept under Section 16(1) of the Ordinance were as follows:

Note 3 Thc shares in which HSBC International Trustee Limited was interested formed part of the shares in which HSBC Investment Bank Holdings B.V. was interested; the shares in which HSBC Investment Bank Holdings B.V. was interested formed part of the shares in which HSBC Holdings B.V. was interested; the shares in which HSBC Holdings B.V. was interested were the shares in which HSBC Finance (Netherlands) was interested and the shares in which HSBC Finance (Netherlands) was interested formed part of the shares in which HSBC Holdings plc was interested.

Of the above shares in the Company in which HSBC International Trustee Limited is interested, 1,032,832,169 shares were part of the shares referred to in Note 1 above.

Code of Best Practice

No director is aware of any information that would reasonably indicate that the Company is not, or was not for any part of the accounting period covered by the interim report, in compliance with the Code of Best Practice as set out in Appendix 14 of the Listing Rules of The Stock Exchange of Hong Kong Limited.

Year 2000 Issue

The Group has conducted a review of its computer systems to identify those operations potentially affected by the year 2000 issue, and to implement any corrective measures required to ensure that the Group's computer systems are "Year 2000 compliant". A detailed plan has been prepared outlining the system conversions and program modifications required. The Group aims to complete the conversion of all key systems by 1998, and achieve full compliance in early 1999. All tasks leading to Year 2000 compliance are on schedule. It is not anticipated that the year 2000 will pose any significant operational problems.

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