On behalf of the board of directors (the “Board”) of Winfair Investment Company Limited (the “Company”, together with its subsidiaries, the “Group”), I am delighted to report the Group’s financial results and activities for the year ended 31 March 2023.

RESULTS AND DIVIDENDS

For the year under review, the revenue of the Group increased by approximately HK$329,000 (or 1.7%), to approximately HK$19,240,000, as compared to the preceding year. The Group recorded a loss of approximately HK$36,227,000, as compared to a profit of approximately HK$13,485,000 in the preceding year.

In January 2023, an interim dividend of HK$0.02 per share was paid. The Board now recommends a final dividend of HK$0.12 per share, totaling HK$4,800,000. Subject to approval by the shareholders of the Company at the forthcoming annual general meeting, such dividend will be payable on or about 28 September 2023.

BUSINESS REVIEW

^# Return on Capital Employed (ROCE) = Profit before tax and interest divided by average capital employed

During the year, the Group recorded a loss of approximately HK$36,227,000 as compared to the profit of approximately HK$13,485,000 in the preceding year. The turnaround from profit to loss was mainly due to fair value loss on investment properties incurred during the year.

The rental income of the Group for the year ended 31 March 2023 was approximately HK$12,738,000, representing a slight decrease of approximately HK$211,000 (or 1.6%), as compared to the preceding year.

Excluding a recurring valuation gain or loss of investment properties, the leasing segment recorded a profit of approximately HK$9,335,000 for the year ended 31 March 2023, representing an increase of approximately HK$315,000 (or 3.5%), as compared to approximately HK$9,020,000 in the preceding year.

Regarding the redevelopment project on No. 31 Fuk Tsun Street (“FTS Project”), the management of the Group has recommenced site investigation since mid-November 2022.

The Group recorded a fair value loss on investment properties of approximately HK$41,600,000 (2022: gain of HK$25,700,000) during the year under review. As at 31 March 2023, the Group’s investment properties portfolio amounted to HK$902,600,000 (2022: HK$944,200,000).

For the year ended 31 March 2023, the Group recorded no fair value gain or loss (2022: gain of HK440,000) on property held for or under development.

As at the date of this report, there was no significant progress on the development.

Dividend income for the year ended 31 March 2023 increased by approximately HK$132,000 (equivalent to approximately 2%) to HK$6,502,000, as compared to the preceding year.

During the year under review, the Group disposed of certain equity instruments at fair value through other comprehensive income (“equity instruments at FVTOCI”) at an aggregate consideration of approximately HK$1,338,000 and realised a gain of approximately HK$852,000 (2022: HK$8,220,000) which was directly transferred from fair value reserve to retained profits.

During the year under review, the Group recorded a fair value loss on equity instruments at FVTPL of approximately HK$6,782,000 (2022: HK$23,122,000) and a fair value loss on equity instruments at FVTOCI of HK$6,611,000 (2022: HK$7,053,000) which were recorded in the consolidated statement of profit or loss and other comprehensive income respectively. As at 31 March 2023, the Group’s listed share investment portfolios had an aggregate fair value of approximately HK$121,633,000 (2022: HK$142,862,000).

Details of the top five of the Group’s share investment portfolios as at 31 March 2023 for long-term investment and trading purposes are set out in Table 1 and Table 2 below, respectively:

Table 1: Details of the top five in the Group’s Share Investment Portfolio for Long-Term Investment Purpose

Note (1): Other securities included ten stocks listed on the Hong Kong Stock Exchange, six of which were current constituents of the Hang Seng Index and their principal businesses mainly included property and construction, conglomerates, financials and information technology.

Note (2): The Group held less than 1% interest in the issued share capital for each underlying company.

Table 2: Details of the top five in the Group’s Share Investment Portfolio for Trading Purpose

Note (1): Other securities included 21 stocks listed on the Hong Kong Stock Exchange, eight of which were current constituents of the Hang Seng Index and their principal businesses were properties and construction, financials, energy, consumer staples, automobile, utilities and real estate REIT.

Note (2): The Group held less than 1% interest in the issued share capital for each underlying company.

As at 31 March 2023, the Group’s total bank borrowings amounted to approximately HK$17,106,000, all of which were denominated in Hong Kong dollars wholly repayable within two years (2022: within five years HK$17,916,000). All of the Group’s bank borrowings are at floating interest rates. The Group’s gearing ratio, which was taken as bank borrowings to total shareholders’ equity, remained at 1.5%. The Group’s banking facilities are subject to review at any time, and also subject to the Bank’s overriding right of repayment on demand.

Cash held by the Group as at 31 March 2023 amounted to approximately HK$134,256,000 (2022: HK$120,634,000). The Group’s outstanding capital commitments for property redevelopment projects, which were contracted but not provided for, were HK$13,050,000. The capital expenditures for redevelopment projects are expected to be partly funded by internal resources and partly funded by construction loans. The management of the Group continues to operate under a prudent financial policy and will implement all necessary measures to ensure that the Group maintains adequate cash and appropriate credit facilities to meet its future operating, project development expenditure and loan repayment obligations. The Group will arrange new credit facilities for the Group’s property development, when necessary. In the long run, the Group will continue to adopt an optimal financial structure for the best interests of its shareholders in light of changes in economic conditions.

The Group did not use any financial instruments for hedging purposes during the years ended 31 March 2023 and 2022.

ASSETS PLEDGED

As at 31 March 2023, the Group’s investment properties with an aggregate carrying value of HK$63,000,000 (2022: HK$65,500,000) were pledged to a bank to secure general banking facilities granted to the Group.

CONTINGENT LIABILITIES

The Group did not have any contingent liabilities as at 31 March 2023 and 2022.

RISK AND UNCERTAINTY

The Group operates in an ever-changing business and economic environment. The Group’s business, financial condition and results of operation are subject to various business risks and uncertainties.

The volatility in US and worldwide credit and financial markets, the COVID-19 pandemic, rising energy costs, inflationary pressure, interest rate hikes, political turbulence, and geopolitical risk have increased the uncertainty of global economic prospect and economic growth. The Group’s results of property leasing, property development and securities investment would be adversely affected. This also increases the cost of property development and finance costs on bank borrowings.

Since the COVID-19 pandemic in 2020, different Governments have implemented tightening precautionary measures to prevent the spread of the corona-virus. The precautionary measures included restrictions on international and local travel, public or private gathering, meeting, temporary closure of restaurants and amusement places, etc. Due to the risk of corona-virus threatening the human life is low, many countries have relaxed the epidemic prevention restriction since 2022. Recently, mainland China and Hong Kong relaxed most of the precautionary measures and gradually show signs of recovery. General speaking, dividend income from securities investment could improve. The value of the securities investment might also rebounce depending on the nature of its business. For the leasing business, although the vacancy of commercial shops has improved, the rebounce in the rental level at pre-pandemic remains questionable. Most landlords prefer to wait and see under the current economic environment imposing no or little rent increase.

Property development has been indirectly affected to a certain degree due to tightening precautionary measures previously implemented by the Hong Kong Government, leading to shortages and unpredictable delays in the supply of construction materials in the local property development market. As a result, the costs of construction materials have substantially increased and are expected to remain high. As development cost is one of the main factors when deciding whether the Group will proceed with or put a halt to the development project, the Group faces this project risk which may affect the Group’s performance in the future.

The change in consumption pattern and digital/online consumption will also affect the business environment and consequently indirectly affect the performance of Group. The value of properties and rental yield will be adversely affected.

In addition, the net population movement will affect the local economic recovery, the rental yield and property market in Hong Kong.

The value of properties may fluctuate according to property market trends and policies implemented by the Hong Kong Government, which may change from time to time. Although a cooling measure on the Hong Kong non-residential market has been withdrawn since late December 2020, the cooling measures on the residential market are still in force and potentially have a dampening effect on the number of transactions and the value of residential properties in the short run. In addition, “Interim Housing”, the new policy in Hong Kong and “Lantau Tomorrow Vision” would have an impact on the local business environment. Those regulatory measures and new policy will have a bearing on any decision for the acquisition of property for redevelopment and investment purposes. The Group would take the above into consideration when considering potential investment opportunities. The Group expects that the property market will be exposed to these risks.

In these respects, the Group regularly assesses the overall economic, political, regulatory measures for the real estate market in Hong Kong and new/revised laws or regulations implemented in Hong Kong, and particularly when deciding on buying and selling strategies. In addition, the Group regularly strengthens the quality of its property portfolio so as to help the Group to improve its performance. For each potential material investment, a feasibility study will be carried out before the proposed acquisition, and focus will be placed on long-term prospects instead of short-term prospects.

The Group would invest in capital expenditure and raise long-term borrowings based on periodic feasibility studies in line with the market. The strategic risk regarding capital expenditure and financial arrangement is of significance nowadays and the Group will remain cautious and prudent in its investment and borrowing to minimize such risk.

The actual and expected global and mainland China economic growth and global/local political factors affect the value and performance of listed shares in Hong Kong. Due to the unpredictable ever-changing economic and geopolitical environment, the securities market is expected to be more volatile. Volatility in the securities market may affect the value and composition of shares in the Group’s investment portfolio, resulting in timely buy/sell decisions in response to rapidly changing market conditions. The commercial risk in the equity market is safeguarded to a certain extent by the long-established expertise and experience of the Group in securities investment. Details of the Group’s price risk management are set out in note 36(d) to the Group’s consolidated financial statements.

The Group may face risks associated with climate change in the long run. Possible rise in sea level resulting from ice melting, severe and frequent typhoon or extreme weather such as flooding or drought, and tsunami resulting from earthquake may arise due to climate change. These possible outcomes may not only be detrimental to physical properties or buildings but also affect the living standards of the global population. Particulars of climate change risk management are set out in the section headed “Climate Change” of the Environmental, Social and Governance Report (“ESG Report”) on page 31 of this annual report.

The Group is also subject to credit risk, liquidity risk, and interest rate risk in the normal course of the Group’s business. Particulars of financial risk management of the Group are set out in note 36 to the Group’s consolidated financial statements.

The Group has no significant exposure to foreign currency risk or fluctuations in exchange rates as the Group’s business activities are solely operated in Hong Kong and mainly dominated in Hong Kong Dollars.

BUSINESS MODEL AND STRATEGY

The core business of the Group focuses on property investment and development in Hong Kong. The Group’s strategy for generating and preserving shareholder value is to invest in properties that offer attractive returns. The Group continues to pursue growth opportunities and make appropriate adjustments to its property investment portfolio.

The Group also focuses on securities investment. The Group’s strategy for generating and preserving shareholder value is to adopt a prudent investment policy on securities which have long-term potential growth. The Group continues to exercise prudent and disciplined financial management to ensure sustainable growth.

EMPLOYEE AND EMOLUMENT POLICY

As at 31 March 2023, the Group had four (2022: four) employees (excluding two executive directors). The Company’s emolument policy is to ensure that the remuneration offered to employees, including executive directors and senior management, is commensurate with their skills, knowledge, responsibilities and involvement in the Company’s affairs. The remuneration packages of the Group’s employees are periodically reviewed objectively and determined based on each individual’s performance. During the year ended 31 March 2023, the total staff costs (including directors’ emoluments) were approximately HK$4,302,000 (2022: HK$4,313,000).

ENVIRONMENTAL POLICY

The principal activities of the Group are property and shares investment, property development and securities dealings. As the Group has not directly engaged in the construction of property during the year, it considers that it has not operated in any environmentally sensitive business during the year. The “Environmental Policy” was formulated by the Group as a guide for the environmental protection practices in the Group’s operations during the year.

For its daily operations, the Group continues to implement feasible measures to reduce paper and electricity consumption in the office. Also, the Group is inclined to let out its properties to eligible tenants with tendencies to carry out environmentally sustainable business practices. The Group believes that the existing laws and regulations do not have any significant adverse effect on the Group’s principal activities during the year ended 31 March 2023. Disclosure relating to the Group’s environment policy and performance is set out in the section headed “Environmental” of the ESG Report on pages 29 to 37 of this annual report.

COMPLIANCE WITH THE RELEVANT LAWS AND REGULATIONS

The Group continues to commit to compliance with relevant laws and regulations in Hong Kong, such as the Companies Ordinance, the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), and other local laws and regulations implemented by the Hong Kong Government. The Group believes the existing laws and regulations do not have any significant effect on the Group’s activities. There was no confirmed non-compliance incident resulting in fines or prosecution during the year ended 31 March 2023.

STAKEHOLDERS OTHER THAN MEMBERS

The success of the Group hinges on the knowledge, skill, drive, passion, and enthusiasm of its employees. To enhance the value for shareholders of the Company, the Group engages its employees in its recruitment plan to ensure that the right individuals are in place, combining the right mix of skill and experience.

The Group recognises the importance of health and safety, and is committed to providing a safe and healthy environment for its employees and tenants. Also, the Group recognises the importance of maintaining a good long-term relationship with its core business stakeholders such as employees, tenants, agents, repairs sub-contractors, other professional bodies, who are all important to the development of the Group’s business. The Group has established at least 10 years of good relationship with its largest tenant, with good creditability. Also, half the number of employees has worked with the Group for at least 10 years.

PROSPECTS

The Hong Kong and Mainland China Governments have continued to relax anti-epidemic measures since late January 2023. The management expects the business and economic activities would gradually return to normal. The performance of the listed companies listed in Hong Kong and property vacancy rates would improve in the future. The management remains optimistic about the outlook of the Hong Kong economy.

However, the upsurge in interest rates, inflation, geopolitical factors, energy crisis, trade war and credit crunch in Western countries have brought uncertainty to the global economic recovery. As the US economy is still in the interest rate hike cycle, and a strong US dollar has traditionally had an adverse effect on the economy, it is expected the securities market will be more volatile in the short run. We will make appropriate adjustments to the securities portfolio in order to safeguard the assets of the Group and consequential return to its shareholders. Relatively high interest rate increases the cost of business and property development cost. We will keep a close watch over the property market and reassess the property market from time to time.

APPRECIATION

I appreciate the support and co-operation of my fellow directors and staff of the Group and thank them for their dedicated services and contribution.

Ng Tai Wai
Chairman

Hong Kong, 26 June 2023