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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 2020.

RESULTS AND DIVIDENDS

For the year under review, the revenue of the Group decreased by HK$4,888,937 (or 18.25%), to HK$21,894,215. The Group recorded a loss of HK$89,310,429, as opposed to a profit of HK$165,638,663 for the preceding year.

In January 2020, an interim dividend of HK$0.02 per share was paid. The Board now recommends a final dividend of HK$0.12 per share and a final special dividend of HK$0.15 per share, totaling of HK$10,800,000. Subject to approval by the shareholders of the Company at forthcoming annual general meeting, such dividends will be payable on or about 29 September 2020.

BUSINESS REVIEW

KEY PERFORMANCE INDICATOR
2020
HK$
2019
HK$
Increase/ (decrease)
HK$
Increase/ (decrease)
Revenue 21,894,215 26,783,152 (4,888,937) (18.25%)
(Loss)/profit before tax (87,854,640) 167,470,042 (255,324,682) (152.46%)
Gain on disposal:        
– Investment properties 82,319,818 (82,319,818)
Fair value (loss)/gain on:        
– Investment properties (85,101,147) 63,609,939 (148,711,086) (233.79%)
– Eq uity instruments at fair
   value through profit or
   loss (“equity instruments
   at FVTPL”) (2019: trading
   securities)
(19,901,731) (4,353,446) 15,548,285 357.15%
(Loss)/profit after tax (89,310,429) 165,638,663 (254,949,092) (153.92%)
EBITDA (87,063,126) 168,286,465 (255,349,591) (151.74%)
ROCE# (6.94%) 13.5% (20.44%) (151.41%)
(Loss)/earnings per share (2.23) 4.14 (6.37) (153.87%)

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

During the year, the Group recorded a loss of HK$89,310,429, as opposed to a profit of HK$165,638,663 in the preceding year. This change was mainly due to (i) an absence of gain on disposal of investment properties of HK$82,319,818, which was recorded in the preceding year; (ii) fair value loss on investment properties amounting to HK$85,101,147, as compared to fair value gain of HK$63,609,939 in the preceding year; and (iii) a 3.5 times increase in fair value loss in equity instruments at fair value through profit or loss (“equity instruments at FVTPL”)/trading securities, as compared to the preceding year.

PROPERTY LEASING

Following the disposal of the property situated at No. 96 Bonham Strand in September 2018 and given the property located at Nos. 60-66 Ma Tau Chung Road (“MTC Property”) has been in vacant possession since early September 2019 and its demolition work was completed in February 2020, the rental income of the Group was HK$15,057,524 during the year, representing a decrease of HK$1,998,245 (or 11.7%) as compared to last year.

On 10 September 2019, Wing Tai Investment Limited, a wholly-owned subsidiary of the Company, acquired the redevelopment site located at No. 31 Fuk Tsun Street (“FTS Property”) at a total cost of approximate of HK$404,876,000 (comprising revised consideration of HK$383,350,000 as stated in the supplemental agreement dated 6 September 2019, stamp duty of HK$17,425,000, professional fees and other incidental costs). Its site area is approximately 4,403 square feet and its maximum gross floor area is about 39,627 square feet. The building proposed to be built and developed will comprise 24-stories of commercial-residential flats and will be held for investment purpose. The general building plan was approved in late April 2020. Consultancy service on foundation work is underway.

The property market sentiment is weak following the social conflicts in Hong Kong since late June 2019 and the coronavirus (“COVID-19”) outbreak since January 2020. The Group recorded a fair value loss of investment properties of HK$85,101,147 (2019: fair value gain of HK$63,609,939) during the year under review. As at 31 March 2020, the Group’s investment properties portfolio amounted to HK$940,000,000 (2019: HK$610,800,000).

PROPERTY DEVELOPMENT

For the year ended 31 March 2020, the Group recorded fair value gain of HK$120,000 (2019: fair value loss of HK12,800) on property held for or under development.

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.

SHARE INVESTMENTS AND DIVIDEND INCOME

Dividend income decreased by HK$1,349,243 (or 16.6%) to HK$6,797,674, as compared to last year. The decrease was mainly due to cancellation of dividend payable by HSBC Holdings plc (Stock code: 0005) on 31 March 2020, shares of which were held by the Group during the year under review.

During the year, the Group recorded a realised gain on disposal of equity instruments at FVTPL/trading securities of HK$39,017 (2019: HK$1,580,466). The Group also realised a gain of disposal on equity instruments at fair value through other comprehensive income (“equity instruments at FVTOCI”) of HK$8,336,466 (2019: HK$3,634,562), which was directly transferred from fair value reserve to retained profits.

During the year under review, the securities market in Hong Kong was unprecedentedly hampered due to social unrest in Hong Kong since late June 2019 and the COVID-19 pandemic in first quarter of 2020. The Group recorded an unrealised loss on equity instruments at FVTPL/trading securities of HK$19,901,731 (2019: HK$4,353,446) and unrealised loss on equity instruments at FVTOCI of HK$33,662,532 (2019: unrealised gain of HK$1,897,730) which were recorded in the consolidated statement of profit or loss and other comprehensive income respectively. As at 31 March 2020, the Group’s listed share investment portfolios had an aggregate fair value of HK$137,362,455 (2019: HK$208,773,698).

Except as disclosed elsewhere in the consolidated financial statements, the Group has no material event after the date of the reporting period that needs to be brought to the attention of the shareholders of the Company.

Details of the Group’s share investment portfolios as at 31 March 2020 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$’
000)
Fair value at
31.3.
2020
(HK$’
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 26,782 16,855 1.4% (7,497) 876
2. 388 Hong Kong Exchanges and Clearing Limited Finan-cials 11,499 13,036 1.1% (2,200) 374
3. 17 New World Develop-ment Co. Ltd. Proper-ties & Constru-ction 12,810 11,883 1.0% (6,667) 274 727
4. 2 CLP Holdings Limited Utilities 3,474 7,150 0.6% (2,760) 7,616 465
5. 1398 ICBC – H Shares Finan-cials 6,881 6,378 0.5% (529) 308
6. 1 CK Hutchison Holdings Limited Conglo-merates 9,479 5,240 0.4% (3,021) 318
7. 1113 CK Assets Holdings Limited Proper-ties & Constru-ction 4,253 0.4% (2,740) 195
Others (note (1)) 26,107 16,343 1.3% (8,249) 446 774
Total 97,032 81,138 6.7% (33,663) 8,336 4,037

Note (1): Other securities included eight stocks listed in Hong Kong, six of which were current constituents of the Hang Seng Index and their principal businesses mainly included conglomerates, financials, energy and utilities. The market value of 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 in the 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-
inessd
Inves-tment Costs
(HK$’
000)
Fair value at
31.3.
2020
(HK$’
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 30,202 16,439 1.3% (7,312) 855
2. 388 Hong Kong Exchanges and Clearing Limited Finan-cials 4,065 8,930 0.7% (1,507) (178) 290
3. 1398 ICBC – H Shares Finan-cials 8,388 6,903 0.6% (572) 333
4. 2628 China Life Insurance Company Limited – H share Finan-cials 8,804 6,679 0.6% (2,583) 38 79
5. 17 New World Develop-ment Co. Ltd. Proper-ties & Constru-ction 5,702 4,507 0.4% (2,529) 276
6. 3988 Bank of China Limited – H Shares Finan-cials 6,556 5,251 0.4% (1,043) 335
7. 386 China Petroleum & Chemical Corporation – H share Energy 6,789 3,629 0.3% (2,252) 373
8. 12 Henderson Land Develop-ment Company Limited Proper-ties & Constru-ction 2,812 3,039 0.2% (1,626) (109) 190
Others (note (1)) 5,358 847 0.1% (478) 288 30
Total 78,676 56,224 4.6% (19,902) 39 2,761

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

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

LIQUIDITY AND FINANCIAL RESOURCES

As at 31 March 2020, the Group’s total bank borrowings were HK$19,537,491 which were wholly repayable within five years (2019: HK$20,525,200, wholly repayable within two 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, remained at 1.6%. 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.

After the acquisition of the FTS Property, cash held by the Group as at 31 March 2020 was reduced to approximately HK$28,000,000 (2019: HK$518,000,000). The Group’s outstanding capital commitments for property redevelopment projects, which were contracted but not accounted for, were HK$14,360,000. The year under review and upcoming few years are viewed as capital expenditure years in the Group’s business cycle. The capital expenditures for redevelopment projects are expected to be partly funded by internal resources and partly funded by construction loan. 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, 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 optimum financial structure for the best interests of its shareholders in light of changes in economic conditions.

ASSETS PLEDGED

As at 31 March 2020, the Group’s investment properties with an aggregate carrying value of HK$78,200,000 (2019: HK$332,400,000) 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. The Group has faced unprecedented inherent risks this financial year, which pose threat to the Group’s business. The continual social unrest in Hong Kong since late June 2019 has weakened the market consumption sentiment and affected tourism and the turnover of the retail shops in Hong Kong. The value of properties and rental yield of the Group’s properties have been adversely affected.

The outbreak of COVID-19 in the first quarter of 2020 is another unprecedented inherent risk to the world economy. The COVID-19 has severely affected the economic activities, causing more retail shops, catering, tourism and many other businesses to shut down. In other words, the Group’s property leasing, property development and share investments would be inevitably affected. It is uncertain how long the COVID-19 last. The speedy recovery of the economy seems unlikely. Protracted downturn of the global economy is a real possibility.

The 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 considering potential investment opportunity. Such cooling measure may or may not slow down the pace for the acquisition of property for re-development purpose. The Group expects that the property market will be exposed to these risks.

In these respects, the Group regularly assesses 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 strengthens the quality of its property portfolio so as to help the Group to improve its performance. For each material potential investment, a feasibility study will be carried out before the proposed acquisition and focus will be placed on longterm 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 regarding capital expenditure and financial arrangement is of significance nowadays and the Group remains cautious and prudent in identifying and minimizing 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 political environment, the securities market will 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 decision under commercial conditions. The commercial risk in the 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 2020, the Group had four (2019: 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 determined based on each individual’s performance.

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 construction of property during the year, it considers that it has not operated in 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.

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 2020. Disclosure relating to the Group’s environment policy and performance is set out in the section headed “Environment” of the Environmental, Social and Governance Report (“ESG Report”) on pages 24 to 27 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 2020.

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 rapid spread of COVID-19 across the countries creates a great unprecedented challenge to the global economy. Unemployment rates have increased and are likely to worsen and business activities have generally slowed down. Businesses such as retail shops, catering business, and entertaining business had been severely affected and even shut down during the difficult period. Since the outbreak of COVID-19, the Group has provided assistance to certain tenants through the grant of temporary rental concession, on a case by case basis, and rental income from the investment properties is inevitably adversely affected.

Social unrest in Hong Kong has not calmed down, and the global economy is facing a great uncertainty due to the widespread of COVID-19. Trade tension between US and China and outcome of the Brexit add to the uncertainties. The market value and rental yield of the Group’s properties are expected to be under downward pressure. The Group expects the annual rental for the year ended 31 March 2021 will be reduced by approximately 10%, as compared to the year ended 31 March 2020.

With China’s recent promotion of the National Security Law to Hong Kong, the Group believes that in the long run, it can reduce social turmoil; the society, people’s livelihood and economic prospects will become clearer.

Generally speaking, the market value of the listed shares has dropped significantly since late January 2020. The Group expects the securities market will be more volatile and dividend rate declared by the listed companies will be reduced in next financial year. Subsequent to the reporting date, following the disposal of the Group’s share investment listed on the Stock Exchange on the open market at an aggregated consideration of approximately HK$48.4 million, the annual dividend income for the year ending 31 March 2021 is expected to reduce by approximately HK$2,391,000 (or 35%) to approximately HK$4,407,000, as compared to HK$6,798,000 for the year ending 31 March 2020. In the short run, the Group inclines to retain more cash to cope with the possibility of global recession. The Group will keep a close watch on market and political changes and make appropriate strategic adjustments to the Group’s assets portfolio in order to safeguard the assets of the Group and consequential return to shareholders.

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, 30 June 2020