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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 2018.

RESULTS AND DIVIDENDS

For the year under review, the revenue of the Group increased by HK$942,973 (or 3.6%), to HK$27,225,759. The Group’s profit for the year increased by HK$310,237,479 (or 6 times), to HK$361,186,148, as compared to the year ended 31 March 2017.

In January 2018, an interim dividend of HK$0.02 per share and interim special dividend of HK$0.10 were paid. The Board now recommends a final dividend of HK$0.12 per share and a final special dividend of HK$0.20, totaling HK$12,800,000. Subject to approval by the shareholders of the Company at forthcoming annual general meeting, such dividends will be payable on or about 28 September 2018.

BUSINESS REVIEW

KEY PERFORMANCE INDICATOR
2018
HK$
2017
HK$
Increase
HK$
Increase
Revenue 27,225,759 26,282,786 942,973 3.6%
Profit before tax 363,558,868 53,334,072 310,224,796 581.7%
Gain on disposal:        
-Investment properties 181,961,940 181,961,940 N/A
-Subsidiary 95,702,400 95,702,400 N/A
Fair value gain on:        
-Investment properties 44,500,000 16,300,000 28,200,000 173.0%
-Trading securities 10,619,074 9,153,467 1,465,607 16.0%
Profit after tax 361,186,148 50,948,669 310,237,479 608.9%
EBITDA 364,251,865 54,009,074 310,242,791 574.4%
ROCE# 36.8% 6.89% 29.91% 434.1%
Earnings per share 9.03 1.27 7.76 611.0%

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

During the year, the Group recorded a historic profit of HK$361,186,148, representing an increase by HK$310,237,479 (or 6 times) as compared to last year. The increase was mainly due to a one-off gain of HK$95,702,400 arising from disposal of a subsidiary of the Group (2017: Nil) and a capital gain of HK$181,961,940 arising from disposal of investment properties (2017: Nil). Excluding these extraordinary gains and fair value gain of investment properties of HK$44,500,000 (2017: HK$16,300,000), the Group’s profit amounted to HK$39,021,808, representing an increase by HK$4,373,139 (or 12.6%) as compared to last year.

PROPERTY INVESTMENT

The rental income of the Group’s property leasing business decreased by HK$148,856 (or 0.8%), to HK$18,940,203, as compared to last year.

With the shareholders’ approval in the extraordinary general meeting held on 30 January 2018 in relation to the disposal of certain of the Group’s properties, comprising of all those shops on ground floor of Nos. 4, 6, 6A, 8 and 10 Nam Kok Road and first floor on No. 4 Nam Kok Road, Kowloon (the “NKR Properties”), held by YLH Limited, a wholly-owned subsidiary of the Company, at a selling price of HK$320,000,000, the disposal was completed on 9 February 2018 and generated a gain of HK$181,961,940 to the Group.

In addition, as the property market in Hong Kong rebounced, the Group recorded a fair value gain of HK$44,500,000 (2017: HK$16,300,000) during the year. The result of property leasing business, therefore, increased by HK$210,734,094 (or 6.7 times), to HK$242,278,268, as compared to last year. Subsequent to the disposal of NKR Properties, the Group’s investment properties portfolio as at 31 March 2018 amounted to HK$514,100,000 (2017: HK$602,800,000).

On 12 February 2018, Hing Full Far East Development Limited, a wholly-owned subsidiary of the Company, entered into a provisional sale and purchase agreement for the acquisition of the property at No. 66 Ma Tau Chung Road, Kowloon (the “66 MTC Properties”) at a consideration of HK$67,600,000. The deposit of HK$6,760,000 and stamp duty of HK$20,280,000 (representing 30% of the consideration) were paid during the reporting period. The acquisition was completed on 27 June 2018.

PROPERTY DEVELOPMENT

For the year ended 31 March 2018, the Group recorded a fair value gain of HK$2,722,592 (2017: HK$2,290,501) on property held for or under development.

On 27 September 2017, 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, at a consideration of HK$108,802,400 (including the shareholders’ loan of HK$20,068,593). The transaction generated a one-off gain of HK$95,702,400 during the year.

In March 2018, the Group applied for a proposed change from agricultural land use to commercial use with respect to Lot No. 2784 RP in demarcation district 130 Tuen Mun, Lam Tei, New Territories, and to date, the application process is still at an early stage.

SHARE INVESTMENTS AND DIVIDEND INCOME

Dividend income slightly decreased by HK$183,986 (or 2.6%) to HK$6,770,913 as compared to last year.

During the year, the Group recorded a realised gain on disposal of trading securities of HK$1,514,643 (2017: HK$238,828) and a realised gain on disposal of available-for-sale financial assets of HK$6,304,733 (2017: HK$6,355,753). The gain on disposal of available-for-sale financial assets was attributable mainly to the sale of various securities, including New World Development Company Limited (stock code: 17), BOC Hong Kong (Holdings) Limited (stock code: 2388) and Sunevision Holdings Limited (stock code: 8008), at a total consideration of approximately of HK$6,386,000.

To strengthen and diversify its shares investment portfolio, the Group purchased certain listed securities at a total cost of approximate of HK$6,000,000 for long-term investment. The major purchases during the year included China Railway Group Limited (Stock code: 390) and BBMG Corporation (stock code: 2009). The Group also purchased certain listed securities at a total cost of approximately HK$5,500,000 for trading purpose. The major purchase was Huaneng Power International Inc. (stock code: 902).

During the year, the Group recorded an unrealised gain on trading securities of HK$10,619,074 (2017: HK$9,153,467) in the profit or loss. Also, the Group recorded an unrealised gain on available-for-sale financial assets of HK$10,242,413 (2017: HK$15,758,838) in other comprehensive income. As at 31 March 2018, the Group’s listed share investment portfolios had an aggregate fair value of HK$184,823,030 (2017: HK$166,802,351).

Subsequent to the reporting period, the Group has continued to strengthen and diversify the shares investment portfolio. Excluding fair value loss of approximate of HK$8.8 million recorded during from 1 April 2018 to 28 June 2018, the Group recorded a net increase in trading securities by approximate of HK$10.6 million and increase in available-for-sale financial assets by approximate of HK$3 million. The purchases were mainly constituents of Hong Kong Hang Seng Index.

Details of the Group’s share investment portfolios as at 31 March 2018 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. 5 HSBC Holdings Plc Finan-cials 23,936 25,113 2.1% 3,576 1,336
2. 2 CLP Holdings Limited Utilities 10,422 23,970 2.0% (405) 873
3. 17 New World Develo-pment Co. Ltd. Proper-ties & Constru-ction 13,358 16,675 1.4% 2,243 3,317 692
4. 388 Hong Kong Exchanges and Clearing Limited Finan-cials 10,981 13,680 1.1% 3,193 242
5. 1 CK Hutchison Holdings Limited Conglo-merates 9,479 9,408 0.8% (170) 273
6. 1113 CK Assets Holdings Limited Proper-ties & Constru-ction 6,597 0.6% 1,358 157
7. 1398 ICBC – H Shares Finan-cials 5,539 6,402 0.5% 1,569 229
Others (note (1)) 14,441 13,753 1.2% (1,122) 2,988 250
Total 88,156 115,598 9.7% 10,242 6,305 4,052

Note (1) Other securities included six stocks listed in Hong Kong, four of which were current constituents of Hang Seng Index and their principal businesses mainly included conglomerates and financials. 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 27,42 24,494 2.0% 3,488 1,303
2. 388 Hong Kong Exchanges and Clearing Limited Finan-cials 5,669 14,321 1.2% 3,343 253
3. 1398 ICBC – H Shares Finan-cials 8,388 8,749 0.7% 2,145 313
4. 3988 Bank of China Limited – H Shares Finan-cials 6,556 7,461 0.6% 636 306
5. 12 Henderson Land Develop-ment Company Limited Proper-ties & Constru-ction 3,085 4,764 0.4% 687 477 216
Others
(note (1))
12,294 9,436 0.9% 320 1,038 328
Total 63,419 69,225 5.8% 10,619 1,515 2,719

Note (1) Other securities included five stocks listed in Hong Kong, three of which were current constituents of Hang Seng Index and their principal businesses mainly included properties and construction, financials and energy. 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 2018, the Group’s total bank borrowings were HK$22,454,800 which is wholly repayable within five years (2017: HK$24,384,400). 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 3.0% to 1.9%. The Group also had banking credit facilities of HK$50,000,000 which has not been utilized. The Group’s banking facilities are subject to review annually and will be due for negotiation in April 2019. 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 2018, the Group held an amount of HK$462,390,765 in cash (2017: HK$54,241,232). 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, and loan repayment obligations. The management will utilize additional credit facilities for the Group’s proposed acquisitions, 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 2018, the Group’s investment properties with an aggregate carrying value of HK$212,700,000 (2017: HK$199,500,000) 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 35(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 35 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 2018, the Group had four (2017: 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 2018. 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 21 to 24 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 2018.

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

The current property market in Hong Kong remains rational and stable. The Group expects the market rent to increase very moderately. Subsequent to the disposal of NKR Property in February 2018, the management expects the annual rental income to drop by 10% in the next financial year. Nevertheless, the disposal will realize substantial capital gain for the Group and accumulate ample cash reserves for sizable property investments by the Group in future.

Completion of the acquisition of 66 MTC Properties in June 2018 has enhanced the completeness of the Ma Tau Chung Road Re-development Project. At present, the Group owns total site area of about 3,676 square feet with 4 blocks of four storeys Chinese tenement. The Board plans to demolish and re-construct the building around mid-September 2019. The annual rental income of approximately HK$2 million, representing 10% of annual rental income, would be inevitablely reduced during the re-development period. The Board also expects stamp duty of HK$17,407,000 to be claimed back in future under the exemption of buyer’s stamp duty (“BSD”) and ad valorem stamp duty (“AVD”). In the next financial year, the Group expects that the fair value of the building may incur a fair value loss at least equivalent to stamp duty of HK$20,280,000 upon the completion and an additional rental income of HK$312,000 is contributed. In the long run, better income can be generated after re-development.

The continuous tightened measures to cool down the residential market are still in force. Facing with the persistent low interest rate and strong cash flow in the market, the management believes the market appetite remains strong and developers are full of confidence in the property market in the near future. The Group will keep its current business strategy plan for identifying high yield property investments and at the same time evaluating and balancing the risk and return for each potential investment.

The global economy faces many uncertainties. US may further increase the interest rate in year 2018. Brexit process and trade war between US and China also create volatility in the securities market. The Group expects the security market to remain volatile. 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. Regarding to long-term securities investment, as the securities market has been mainly led by the financials, property and utilities industries, the Group’s investing strategy will continue to focus on those business sectors which bring long-term potential growth.

APPRECIATION

Taking this opportunity, I would like to extend my deepest gratitude to Dr. Loke Yu alias Loke Hoi Lam, who resigned as an independent non-executive director with effect from 3 April 2018, for his dedication to the Group in the past 10 years. I would also like to welcome Ms. Ng Kwok Fun and Mr. Heng Pei Neng Roy to the board with effect from 23 June 2017 and 3 April 2018 respectively. 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, 29 June 2018