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Chairman's Letter

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 2019.

RESULTS AND DIVIDENDS

For the year under review, the revenue of the Group decreased by HK$442,607 (or 1.6%), to HK$26,783,152. The Group’s profit for the year decreased by HK$195,547,485 (or 54.1%), to HK$165,638,663, as compared to the last year.

In January 2019, an interim dividend of HK$0.02 per share and interim special dividend of HK$0.05 were paid. The Board now recommends a final dividend of HK$0.12 per share, absorbing a total of HK$4,800,000. Subject to approval by the shareholders of the Company at forthcoming annual general meeting, such dividends will be payable on or about 10 October 2019.

BUSINESS REVIEW

KEY PERFORMANCE INDICATOR
2019
HK$
2018
HK$
Increase
HK$
Increase
Revenue 26,783,152 27,225,759 (442,607) (1.6%)
Profit before tax 167,470,042 363,558,868 (196,088,826) (53.9%)
Gain on disposal:        
-Investment properties 82,319,818 181,961,940 (99,642,122) (54.8%)
-Subsidiary 95,702,400 (95,702,400) N/A
Fair value gain on:        
-Investment properties 63,609,939 44,500,000 19,109,939 42.9%
-Trading securities (4,353,446) 10,619,074 (14,972,520) (141.0%)
Profit after tax 165,638,663 361,186,148 (195,547,485) (54.1%)
EBITDA 168,286,465 364,251,865 (195,965,400) (53.8%)
ROCE# 13.5% 36.8% (23.3%) (63.3%)
Earnings per share 4.14 9.03 (4.89) (54.2%)

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

During the year, the Group recorded a profit of HK$165,638,663, representing a decrease by HK$195,547,485 (or 54.1%) as compared to last year. The decrease was mainly due to decrease in gain on disposal of investment properties of HK$99,642,112 as compared to last year, absence of gain on disposal of subsidiary of HK$95,702,400 during the year and fair value loss on trading securities, as opposed to fair value gain in last year.

PROPERTY INVESTMENT

Following the disposal of Nam Kok Road Property and No. 96 Bonham Strand Property in February 2018 and September 2018 respectively, the rental income of the Group was HK$17,055,769 during the year, representing a decrease by HK$1,884,434 (or 9.9%) as compared to last year.

On 28 June 2018, Hing Full Far East Development Limited, a wholly-owned subsidiary of the Company, completed the acquisition of No. 66 Ma Tau Chung Road, Kowloon (“66 MTC Property”) at a total cost of HK$88,690,061 (comprising a consideration of HK$67,600,000, a 30% stamp duty and other incidental cost) in order to enhance the completeness of Ma Tau Chung Road Re-development Project (“the MTC Project”). As at 31 March 2019, the properties located at Nos. 60, 62, 64 and 66 Ma Tau Chung (“60-66 MTC Property”) was valued on a one asset basis, instead of the four standalone basis which was previously used as the valuation using the one asset basis is more suitable in reflecting the re-development potential. Thus, 60-66 MTC Property recorded the fair value gain of approximately of HK$31,000,000 for the year.

On 14 August 2018, Konchoy Limited, a wholly-owned subsidiary of the Company, entered into a Provisional Sale and Purchase Agreement with the Purchaser, independent third party, in relation to the disposal of the property located at No. 96 Bonham Strand, Hong Kong at selling price of HK$138,000,000 (the “Disposal”). The Disposal was completed on 20 September 2018 and generated a capital gain of HK$82,319,818.

The property market in Hong Kong remained stable during the year. The Group’s fair value of investment properties was increased by 11.6% and a fair value gain of HK$63,609,939 (2018: HK$44,500,000) was recorded during the year. As at 31 March 2019, the Group’s investment properties portfolio amounted to HK$610,800,000 (2018: HK$514,100,000).

PROPERTY DEVELOPMENT

For the year ended 31 March 2019, the Group recorded a fair value loss of HK$12,800 (2018: fair value gain of HK2,722,592) on property held for or under development.

In the last financial year, the Company completed the disposal of the 100% equity interest in Winful Far East Limited, a wholly-owned subsidiary of the Company, which solely held the land located at Lot Nos. 42RP and 122RP in demarcation district 121 Yuen Long, Ping Shan, New Territories. The transaction generated a gain of HK$95,702,400.

Regarding the land located at Lot No. 2874 RP in demarcation district 130 Tuen Mun, Lam Tei, New Territories, the Group re-applied and re-negotiated with the Lands Department for the proposed change from agricultural land use to commercial use in October 2018. As at the date of this report, the application is still in process.

On 9 May 2019, Wing Tai Investment Limited, a wholly-owned subsidiary of the Company, entered into a Provisional Sale and Purchase Agreement (the “Provisional Agreement”) with the Seller, an independent third party, in relation to the acquisition of the Remaining Portion of Kowloon Inland Lot No. 2123 together with the messuages erections and buildings thereon (if any) (here known as “31 Fuk Tsun Street”) at a purchase price of HK$410,000,000 (the “FTS Acquisition”). The FTS Acquisition is scheduled to be completed on 10 September 2019, subject to shareholders’ approval for such acquisition in the forthcoming extra-ordinary general meeting (“EGM”) of the Company.

SHARE INVESTMENTS AND DIVIDEND INCOME

Dividend income increased by HK$1,376,004 (or 20.3%) to HK$8,146,917 as compared to last year. The increase was mainly due to increase in holding of shares in the first half of the financial year.

During the year, the Group recorded a realised gain on disposal of trading securities of HK$1,580,466 (2018: HK$1,514,643). Upon the adoption of HKFRS 9 on 1 April 2018, the Group elected all long term equity investment, which was previously classified as “available-for-sale financial assets”, as “FVTOCI equity investment”. During the year, the Group realised a gain of HK$3,634,562, which was directly transferred from fair value reserve (non-recycling) to retained profits. The gain on disposal of FVTOCI equity investment was attributable mainly to the sale of various securities, including CLP Holdings Limited (stock code: 2) and New World Development Company Limited (stock code: 17), at a total consideration of approximately of HK$6,000,000. In last year, the Group realised a gain on disposal of available-for-sale financial assets of HK$6,304,733 and recorded in the statement of profit or loss under HKAS 39.

During the first half of the financial year, the securities market was volatile and in a correction period. The Group considered it might be good opportunity to strengthen and diversify its shares investment portfolio. The Group purchased certain listed securities at a total cost of approximate of HK$17,000,000 for long-term investment during the year. The major purchases included China Petroleum & Chemicals Corporation (stock code: 386), Huaneng Power International Inc. (stock code: 902) and BBMG Corporation (stock code: 2009). Also, the Group made a portfolio adjustment on the trading securities and recorded a net purchase of HK$18,450,000 during the year. The Group mainly increased the shareholding of blue chip stocks including China Life Insurance Co. Ltd. (stock code: 2628), New World Development Co. Ltd. (stock code: 17) and China Petroleum & Chemicals Corporation (stock code: 386).

During the year, the Group recorded an unrealised loss on trading securities of HK$4,353,446 (2018: unrealised gain of HK$10,619,074) and unrealised gain on FVTOCI equity investment of HK$1,897,730 (2018: unrealised gain on available- for-sale financial assets of HK$10,242,413) which were recorded in the statement of profit or loss and other comprehensive income respectively. As at 31 March 2019, the Group’s listed share investment portfolios had an aggregate fair value of HK$208,773,698 (2018: HK$184,823,030).

Subsequent to the reporting period, the Group disposed of various FVTOCI equity investment at a total consideration of approximate of HK$6,700,000 and generated a gain of approximate of HK$3,300,000. Also, following a decline in Hong Kong Hang Seng Index, the market value of the Group’s share investment portfolio (for long-term investment and trading purpose) as at 25 June 2019 dropped by approximately of HK$9,500,000, as compared to 31 March 2019.

Details of the Group’s share investment portfolios as at 31 March 2019 for long-term investment and trading purposes are set out in Table 1 and Table 2 below, respectively:

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

Stock code Stock name Prin-cipal bus-inessd Inves-tment Costs
(HK$’
000)
Fair value at
31.3.
2018
(HK$’
000)
Propor-tional to total assets of the Group Fair value gain/ (loss) during the year
(HK$’
000)
Gain on dispo-sal
(HK$’
000)
Divi-dend income
(HK$’
000)
1. 2 CLP Holdings Limited Utilities 8,685 22,738 1.7% 3,436 2,932 804
2. 5 HSBC Holdings Plc Finan-cials 25,319 22,888 1.7% (3,607) 1,417
3. 17 New World Develo-pment Co. Ltd. Proper-ties & Constru-ction 13,170 19,072 1.4% 2,999 702 718
4. 388 Hong Kong Exchanges and Clearing Limited Finan-cials 11,330 15,067 1.1% 1,037 519
5. 1 CK Hutchison Holdings Limited Conglo-merates 9,479 8,261 0.6% (1,147) 295
6. 1113 CK Assets Holdings Limited Proper-ties & Constru-ction 6,993 0.5% 396 175
7. 1398 ICBC – H Shares Finan-cials 6,881 6,907 0.5% (835) 248
Others (note (1)) 27,593 26,523 2.0% (381) 379
Total 102,457 128,449 9.5% 1,898 3,634 4,555

Note (1) Other securities included nine stocks listed in Hong Kong, six of which were current constituents of Hang Seng Index and their principal businesses mainly included conglomerates, financials, energy and utilities. The market value for each individual stock was less than 5% of the market value of the Group’s share investment portfolio for long term purpose.

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

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

Stock code Stock
name
Prin-cipal bus-iness Inves-tment Costs
(HK$’
000)
Fair value at 31.3.
2017
(HK’
000)
Propor-tional to total assets of the Group Fair value gain/
(loss) during the
year
(HK$’
000)
Gain on dispo-sal
(HK$’
000)
Divi-dend income
(HK$’
000)
1. 5 HSBC Holdings Plc Finan-cials 28,776 22,324 1.6% (3,518) 1,382
2. 388 Hong Kong Exchanges and Clearing Limited Finan-cials 4,467 11,672 0.9% 803 54 498
3. 2628 China Life Insurance Company Limited – H share Finan-cials 9,605 10,104 0.8% 499 45 97
4. 1398 ICBC – H Shares Finan-cials 8,388 7,475 0.6% (1,274) 339
5. 17 New World Development Co. Ltd. Proper-ties & Constru-ction 5,702 7,037 0.5% 1,139 635 470
6. 3988 Bank of China Limited – H Shares Finan-cials 6,556 6,294 0.5% (1,167) 337
7. 386 China Petroleum & Chemical Corporation – H share Energy 6,789 5,881 0.4% (953) 350 187
8. 12 Henderson Land Development Company Limited Proper-ties & Constru-ction 3,085 5,118 0.4% 353 166
Others (note (1)) 8,502 4,419 0.3% (235) 496 116
Total 81,870 80,324 6.0% (4,353) 1,580 3,592

Note (1) Other securities included three stocks listed in Hong Kong, one of which was current constituents of Hang Seng Index and its principal business is financials. The market value for each individual stock was less than 5% of the market value of the Group’s trading securities portfolio.

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

LIQUIDITY AND FINANCIAL RESOURCES

As at 31 March 2019, the Group’s total bank borrowings were HK$20,525,200 which were wholly repayable within 2 years (2018: HK$22,454,800 which were wholly repayable with 5 years) based on the initial terms thereunder. Subsequent to the reporting period, the bank agreed to re-finance the existing bank loans which would be wholly repayable in 5 years. 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, decreased from 1.9% to 1.6%. The Group also had banking credit facilities of HK$50,000,000 which had not been utilized. The Group’s banking facilities are subject to review annually and will be due for re-negotiation in April 2020. During the past year, the Group diligently monitored its compliance with the lending bank’s covenants on loan-to-security value ratio.

As at 31 March 2019, the Group held an amount of HK$518,167,105 in cash (2018: HK$462,390,765). Subsequent to the reporting period, the Group paid the stamp duty and deposit amounting to HK$123,000,000 and HK$41,000,000 in relation to the FTS Acquisition respectively. The management is in negotiation with the banks for new credit line for the FTS Acquisition and related development expenditure. The management of the Company 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 and project development expenditure (not limited to FTS Acquisition and its related development expenditure) and loan repayment obligations. In the long run, the Group will continue to adopt an optimum financial structure for the best interests of its shareholders in light of changes in economic conditions.

ASSETS PLEDGED

As at 31 March 2019, the Group’s investment properties with an aggregate carrying value of HK$332,400,000 (2018: HK$212,700,000) were pledged to a bank to secure general banking facilities granted to the Group.

RISK AND UNCERTAINTY

The Group is generally operating in an ever-changing business and economic environment. Value of properties may fluctuate according to property market trends and affected by other relevant measures implemented by the Hong Kong government from time to time. The cooling measure on the residential market potentially has a dampening effect on the number of transactions and the value of the residential market in the short run. The Group would take the above into consideration when deciding potential investment opportunity. Such cooling measure may or may not slow down the pace for the acquisition of property for re-development purpose, but the rental income for residential flats is expected to be stable. The Group expects that the property market will be exposed to these risks. In this respect, the Group regularly assess the overall economic, political, and regulatory measures for the real estate market in Hong Kong and particularly when deciding on buying and selling strategies. In addition, the Group regularly strengthen the quality of its property portfolio so as to help the Group to improve its performance. For each material potential investment, feasibility study will be carried out before the proposed acquisition and focus will be placed on long-term prospect instead of short-term prospect.

The Group would invest in capital expenditure and raise long-term borrowings based on periodic feasibility studies in order to cope with market demand and competition. The strategic risk on capital expenditure and financial arrangement is of significance nowadays and the Group remains cautious and prudent in identifying and minimizing such risk.

Generally speaking, the actual and the expected global and mainland China economic growth and global political factor affect the value and performance of listed shares in Hong Kong. The securities market is more volatile due to the unpredictable ever-changing economic and political environment. Volatility in the securities market may affect the composition of shares in the Group’s investment portfolio, resulting in timely buy/sell decision under commercial conditions. The commercial risk in equity market is only 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 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.

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 2019, the Group had four (2018: 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 based on their skills, knowledge, responsibilities and involvement in the Company’s affairs. The remuneration packages of the Group’s employees are periodically reviewed objectively and based on each individual’s performance.

ENVIRONMENTAL POLICY

The principal activities of the Group are property and securities investment. The Group has not engaged in property development activities during the year and considers that it has not operated in environmentally-sensitive businesses 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.

In the course of its daily operations, the Group continues to implement feasible measures to reduce paper and electricity consumption in 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 2019. Disclosure relating to the Group’s environment policy and performance are set out in the section headed “Environment” of the Environmental, Social and Governance Report (“ESG Report”) on pages 25 to 31 of this annual report.

COMPLIANCE WITH THE RELEVANT LAWS AND REGULATIONS

The Group continues to commit to comply with the 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 were no confirmed non-compliance incidents resulting in fines or prosecution during the year ended 31 March 2019.

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 long-term good relationship with its core business stakeholders such as employees, tenants, agents, repairs sub-contractor, 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

Completion of the acquisition of the 66 MTC Property in June 2018 has enhanced the completeness of the MTC Project. The Board expects 60-66 MTC Property will be in vacant possession in late September 2019. The Board plans to demolish the building in second half of financial year 2019/20. Subsequently, the annual rental would be further reduced by HK$2 million (or 11% of annual rental income in the current year). The Board expects stamp duty of HK$17,407,000 to be claimed back in future under the exemption to payment of buyer’s stamp duty (“BSD”) and ad valorem stamp duty (“AVD”).

On 9 May 2019, Wing Tai Investment Limited, a wholly-owned subsidiary of the Company, entered into a Provisional Agreement in relation to the FTS acquisition at a purchase price of HK$410,000,000. Should the FTS Acquisition be approved by the shareholders of the Company in the forthcoming EGM, the FTS Acquisition will be completed on 10 September 2019. The Group will prioritize FTS project and immediately arrange the preparation work on the foundation work and other relevant preparation works.

The Hong Kong Government has implemented tightened measures to cool down the residential market. In 2018 Policy, the Government has proposed land reclamation in Lantau Island in order to increase the supply of land. It also proposed cooperation with the private enterprise in residential sector. The Group will monitor the latest land development policy of the Hong Kong Government.

The worldwide economic environment is full of uncertainty. Trade war between US and China has been ongoing since June 2018, and unfavorably affects the trading index in China. The longer the period they take to negotiate with each other, the more volatile in the securities market and uncertainty in economic environment remain. Brexit process also creates volatility in the securities market. The Group will keep a close watch of market changes and make appropriate strategic adjustments to the Group’s assets portfolio in order to maximize the returns to shareholders of the Company. The Group will keep its current business strategy plan for identifying high yield property investments and at the same time evaluate and balance the risk and return for each potential investment.

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 2019