On behalf of the board (the “Board”) of directors (the “Directors”) of Dynamic Holdings Limited (the “Company”), I present to the shareholders the management statement including, among others, discussion and analysis of the performance and the unaudited interim results of the Company and its subsidiaries (the “Group”) for the six months ended 31 December 2023, which have been reviewed by external auditor of the Company, Deloitte Touche Tohmatsu.

Interim Results

For the six months ended 31 December 2023, the Group reported a total revenue of HK$38,307,000 (2022: HK$39,606,000) and gross profit of HK$24,914,000 (2022: HK$26,934,000), showing a decrease of revenue and gross profit about 3% and 7% respectively as compared with those of the previous corresponding period. The gross profit margin is about 65% (2022: 68%). These results were mainly attributable to rental income of investment properties of the Group in mainland China denominated in renminbi yuan (“RMB”).

During the period under review, the Group accounted for other income, gain or loss in the net loss of HK$24,000 (2022: gain of HK$6,582,000), which arose mainly from reversal of imputed interest income of HK$7,188,000 (2022: imputed interest income of HK$6,380,000) on the amount due from a joint venture of the Group (the “JV”) in the mainland China, together with bank interest income of HK$2,490,000 (2022: HK$3,138,000) and net exchange gain of HK$4,097,000 (2022: net exchange loss of HK$4,494,000) due to the appreciation of RMB against Hong Kong dollar (“HKD” or “HK$”) in the period. Furthermore, the Group recorded an aggregate decrease of HK$13,338,000 (2022: HK$10,812,000) in the fair value of the investment properties under subdued market sentiment in the period.

In addition, the Group shared substantial profit of the JV in the period, amounting to HK$12,635,773,000 primarily arisen from the recognition of fair value gain of a piece of land distributed to the Group by the JV as announced by the Company on 20 December 2023. Further details are explained below.

Taking into account of the above-mentioned decrease in fair value of our investment properties, share of the profit of the JV in the period together with the related effect of deferred taxation, the Group recorded a profit for the period attributable to shareholders of the Company in the sum of HK$5,365,693,000 (2022: HK$1,476,000), with basic earnings per share of HK$22.57 (2022: 0.62 Hong Kong cents).

In addition, due to exchange difference on translation to presentation currency in HKD from functional currency in RMB, which appreciated against HKD by about 1.71% (2022: devalued by 4.5%) in the period, the other comprehensive income was HK$71,638,000 (2022: other comprehensive expense of HK$92,204,000), and the total comprehensive income attributable to shareholders of the Company amounted to HK$5,436,647,000 (2022: total comprehensive expense of HK$88,954,000) in the period.

Interim Dividend

The Directors have declared an interim dividend of 0.5 Hong Kong cents (six months ended 31 December 2022: 0.5 Hong Kong cents) per share for the six months ended 31 December 2023 to the shareholders of the Company whose names appear on the register of members on Friday, 5 April 2024. The warrants for the interim dividend are expected to be despatched to those entitled on or about Friday, 26 April 2024.

Business Review

In the period under review, the overall revenue and segment results of the Group continued to derive from its operating segment in property rental generated from its investment properties in mainland China (the revenue of which was denominated in RMB). The performance of rental segment of the Group was primarily affected by the decreasing fair value as compared with those of the last corresponding period due to poor market sentiment of the property sector in mainland China. Meanwhile, the results of the Group recorded a significant fair value gain as a result of a piece of land in the mainland China distributed to the Group in the period, which was held as properties under development.

The rental income of the Group generated from its investment properties in two major cities, Shanghai and Beijing, was in the amount of RMB34,995,000 (2022: RMB35,432,000), showing a slight drop of 1% income as compared with that of last corresponding period. Such rental income presented in the financial statements in the sum of HK$38,307,000 (2022: HK$39,606,000), which represented all (2022: all) of the consolidated revenue income of the Group in the period. The fair value of the investment properties of the Group, which comprised shopping malls, car parks and other certain properties in Beijing and office units in Shanghai, recorded a decrease in the sum of RMB12,185,000 (equivalent to HK$13,338,000) (2022: RMB9,673,000 (equivalent to HK$10,812,000)) under subdued market sentiment in the period. As such, the results of property rental segment recorded a profit of RMB10,375,000 (equivalent to HK$11,357,000) (2022: RMB14,131,000 (equivalent to HK$15,796,000)). Excluding the effects of the changes in fair value of these investment properties and related tax effect, the underlying segment results recorded a profit of RMB22,560,000 (equivalent to HK$24,695,000) (2022: RMB23,804,000 (equivalent to HK$26,608,000)).

In Beijing, the rental income generated from the well-established community mall of the Group in Chaoyang District increased together with average occupancy rate of about 85% (2022: about 79%) throughout the period. The rental income of this segment in the period totaled RMB13,588,000 (2022: RMB12,194,000) representing an increase of about 11%, as compared with that of the last corresponding period. It translated into HK$14,874,000 (2022: HK$13,631,000) which accounted for 39% (2022: 34%) of the total revenue of the Group. The increase of rental income was mainly due to improved occupancy rate and retailing sentiment in Beijing in the period. And the fair value of these investment properties slightly decreased in the sum of RMB2,283,000 (equivalent to HK$2,499,000) (2022: RMB2,300,000 (equivalent to HK$2,571,000)), and a profit of RMB4,611,000 (equivalent to HK$5,048,000) (2022: RMB4,355,000 (equivalent to HK$4,868,000)) was recorded in the segment results in the period. Excluding the effects of the changes in fair value of these investment properties and related tax effect, the underlying segment results recorded a profit of RMB6,894,000 (equivalent to HK$7,547,000) (2022: RMB6,655,000 (equivalent to HK$7,439,000)).

In Shanghai, the quality offices of the Group known as “Eton Place” located in core financial district of Little Lujiazui in Pudong had an average occupancy rate of about 86% (2022: 87%) in the period, whereas the rental income was in the sum of RMB21,407,000 (2022: RMB23,238,000), representing a drop of about 8%, as compared with that of the last corresponding period. It translated into HK$23,433,000 (2022: HK$25,975,000) which accounted for 61% (2022: 66%) of the total revenue of the Group in the period. The drop in rental income was primarily due to the influx of new office supply for leasing in Shanghai and low net take-up rate in the office market under sluggish economy and tenants’ tight budget. In the period, the fair value of these investment properties decreased in the sum of RMB9,902,000 (equivalent to HK$10,839,000) (2022: RMB7,372,000 (equivalent to HK$8,241,000)), and a profit of RMB5,763,000 (equivalent to HK$6,309,000) (2022: RMB9,776,000 (equivalent to HK$10,928,000)) was recorded in the segment results in the period. Excluding the effects of the changes in fair value of these investment properties and related tax effect, the underlying segment results recorded a profit of RMB15,665,000 (equivalent to HK$17,148,000) (2022: RMB17,148,000 (equivalent to HK$19,169,000)).

During the period under review, Shenzhen Zhen Wah Harbour Enterprises Ltd. (“Zhen Wah”, the JV in which the Company holds 49% of equity interests), which previously held interests in a piece of land located in Tung Kok Tau, Nanshan District, Shenzhen (the “Previous Land”), previously was under proceedings of compulsory liquidation (the “Compulsory Liquidation”) which commenced in July 2016 under supervision of Shenzhen Intermediate People’s Court of Guangdong Province (the “Court”) and management of a liquidation committee as appointed by the Court. Such proceeding had subsequently been withdrawn in May 2023 pursuant to a memorandum (the “Memorandum”) signed among the Group, the jointer venture partner of Zhen Wah (“JV Partner”) and others in April 2023. The Group and the JV Partner jointly continued to work together to complete the Land Swap and Land Allocation (as defined below) on a joint and voluntary basis without the Court’s proceedings.

In the period, the Group continued to work actively with the JV Partner and the relevant official authorities in respect of a land swap (the “Land Swap”) that was to surrender the Previous Land to 深圳市規劃和自然資源局南山管理局 (Nanshan Administration of Shenzhen Municipal Bureau of Planning and Natural Resources) (the “Bureau”) in return for a new piece of land (the “New Land”) to be granted by the Bureau and division of the New Land into two plots of land nos. K709-0003 and K709-0004, to be allocated to the Group and JV Partner respectively (the “Land Allocation”) according to the Memorandum, relevant agreements, laws, regulations and procedures.

As announced by the Company on 20 December 2023, Dynamic (B.V.I.) Limited (“Dynamic BVI”, a shareholder of Zhen Wah and a wholly-owned subsidiary of the Company) entered into 深圳市國有建設用地使用權出讓合同 (Shenzhen State-owned Construction Land Use Rights Transfer Contract) (the “Group Land Transfer Contract”) with the Bureau on 14 December 2023, in which the Bureau agreed to grant the land plot no. K709-0003 (the “Group Allocated Land”) to Dynamic BVI, while the JV Partner also entered into 深圳市國有建設用地使用權出讓合同 (Shenzhen State-owned Construction Land Use Rights Transfer Contract) with the Bureau, in which the Bureau agreed to grant the land plot no. K709-0004 (the “JV Partner Allocated Land”) to the JV Partner. A supplemental agreement to the Group Land Transfer Contract was entered into on 15 December 2023 between the Bureau, Dynamic BVI and 深圳市達力房地產開發有限公司 (Shenzhen Dynamic Real Estate Development Co., Ltd.) (“Shenzhen Dynamic”), a wholly-owned subsidiary of the Company established under the laws of the PRC, pursuant to which the Bureau had agreed that the land use rights of the Group Allocated Land to be changed from Dynamic BVI to Shenzhen Dynamic according to the relevant agreements, laws, regulations and procedures.

The Group Allocated Land (K709-0003) is located to the east of 後海大道 (Hou Hai Avenue), to the south of 蛇口新街 (Shekou New Street), to the north of 望海路 (Wang Hai Road) and to the west of the JV Partner Allocated Land, and has a site area of approximately 65,000 square metres and developable gross floor area of approximately 179,000 square metres (including 143,000 square metres for residential use and 29,000 square metres for commercial use and others for supporting ancillary facilities). The Group Allocated Land was for multi-purpose development, with 建設用地規劃許可證 (The Construction Land Planning Permit) and 不動產權証書 (Stated-owned Land Use Right Certificate) as issued by the Bureau to the Group in August 2023 and February 2024 respectively. The Group Allocated Land is held as properties under development.

Moreover, the Group, JV Partner and Zhen Wah had settled the land premium which was paid by Zhen Wah to the Bureau in respect of the Previous Land for the purpose of the Land Allocation in accordance with the respective percentages of equity interests in Zhen Wah. Further, the Group recognised a fair value gain of the Group Allocated Land in the period under review in the sum of RMB11,537,708,000 (equivalent to HK$12,629,669,000) as valued by an independent valuer. As such, the Group recognised a profit of Zhen Wah in the amount of RMB11,543,284,000 (equivalent to HK$12,635,773,000) including the above fair value gain in the period, which was a non-cash item. In this connection, the Group has provided deferred tax in the sum of RMB6,623,071,000 (equivalent to HK$7,249,897,000) to be settled when the properties of the Group Allocated Land are developed and being disposed of. It had been noted that there would be relevant substantial construction and development costs required to be incurred by the Group in connection with the Group Allocated Land in the future.

In the period under review, Zhen Wah repaid the Group’s advances in the amount of RMB210,629,000 (equivalent to HK$230,564,000) previously granted by the Group to it for payment of land premium of the Previous Land together with interest, which was funded by JV Partner pursuant to the Memorandum.

As further announced on 23 December 2023, there was historical disputes over Zhen Wah between the Group and JV Partner, including the change of equity interests from 80% to 49% in Zhen Wah in prior years (the “Historical Disputes”). Based on the PRC legal advice received by the Group, the Group was entitled to the distribution of profit arising from the relevant income generated from the Previous Land held by Zhen Wah before re-development, as supported in the arbitral award made in 2010 after arbitration between the Group and JV Partner in respect of the Historical Disputes. As such, the Group continued to act proactively and to seek PRC legal advice and to take expedient actions (including but not limited to litigation and/or arbitration) to further strive for the best interest of the Group in Zhen Wah and its assets in respect of the Historical Disputes.

Meanwhile, as previously disclosed, an ex-tenant lodged several administrative proceedings with the Court against the relevant official authorities concerning the Previous Land as defendants and joining Zhen Wah as a third party, opposing the relocation compensation agreement made between the Bureau and Zhen Wah in 2021 for demolition, relocation and compensation of those buildings, erections and equipment on the Previous Land and claiming for compensation. In the period, the Court gave a judgement of the administrative proceedings in which the ex-tenant as the plaintiff and the relevant official authorities as defendants appealed, with Zhen Wah named as a third party. As advised by the Group’s PRC legal adviser, Zhen Wah had a defence to the claims under the administrative proceedings on the basis that the claims were lacking in factual and legal basis. The Group and the JV Partner will closely monitor the development of the administrative proceedings and take appropriate actions as and when necessary, based on the advice of its PRC legal adviser.

Financial Review

Capital Structure

The financial position of the Group remains sound and liquid, and its financing and treasury policies are managed and controlled at the corporate level and in a prudent manner during the period. The main objective is to utilise the Group’s funds efficiently and to manage the financial risks effectively. At 31 December 2023, the equity attributable to owners of the Company amounted to RMB6,724,629,000 (30 June 2023: RMB1,830,193,000) with net asset value per share of RMB28.29 (30 June 2023: RMB7.70), translating into HK$7,420,526,000 (30 June 2023: HK$1,985,068,000) with net asset value per share of HK$31.22 (30 June 2023: HK$8.35) after accounted for the fair value of the properties under development in the period. As at 31 December 2023, total bank borrowings of the Group amounted to nil (30 June 2023: nil), and hence the gearing ratio of the Group was nil (30 June 2023: nil) based on the total debt of the Group to its equity attributable to owners of the Company. The exposure to foreign currency fluctuations affected the Group in the period under review was mainly the appreciation of RMB against HKD, resulting in the net exchange gain of HK$4,097,000 (six months ended 31 December 2022: net exchange loss of HK$4,494,000) and exchange difference on translation from functional currency in RMB to presentation currency in HKD, amounting to other comprehensive income of HK$71,638,000 (six months ended 31 December 2022: other comprehensive expense of HK$92,204,000) for the period under review. No financial instruments were used for hedging purpose in the period. The Group will continue to closely monitor the impact of fluctuation of RMB in order to minimise its adverse impact.

Financial Resources and Liquidity

In the period under review, there was sufficient cashflow as generated by rental revenue of investment properties in Shanghai and Beijing as well as the repayment of advances and interest income received from a joint venture of the Group. As at 31 December 2023, the bank balance and cash and fixed bank deposits of the Group stood at HK$450,822,000 (30 June 2023: HK$212,955,000) in aggregate and denominated primarily in RMB. With sufficient cashflow, the Group maintained un-utilised credit facilities of HK$1,000,000 (30 June 2023: HK$1,000,000) as working capital at floating interest rate. As at 31 December 2023, the Group’s net current assets amounted to HK$13,154,091,000 (30 June 2023: HK$346,741,000) with current ratio of 74.81 (30 June 2023: 3.82) after accounted for the fair value of the properties under development in the period. And no significant capital expenditure commitments and authorisations was made in the period. The projected construction and development costs of the properties under development of the Group Allocated Land will be substantial (subject to the development plan and the positive results of the arbitration and/or litigation in respect of the Historical Disputes if any), which will be funded by internal resources, bank financing and such other applicable means as appropriate.

Pledge of Assets and Contingent Liabilities

As at 31 December 2023, the borrowing of the Group was nil as it fully repaid all banking facilities previously granted by a financial institution. As a result of such full repayment, the Group had fully discharged and released the pledged properties of the Group with a total carrying value of HK$771,336,000 (30 June 2023: HK$764,659,000), provided for the purpose of and as security for such banking facilities, comprising an assignment of rental and sale proceeds from such properties and a charge over shares in respect of a wholly-owned subsidiary of the Group, and pledged of certain of its bank deposits (30 June 2023: HK$9,324,000). As at the end of the reporting period, the Group had not given any guarantees (30 June 2023: nil) in respect of settlement of home loans provided by banks to the home buyers of a property project in Beijing.

Prospects

China economy is still facing challenges from setbacks of COVID-19 pandemic, prolonged downturn in the property sector, soft global demand for China’s exports and wavering consumer confidence, hindering economic recovery and growth. Nevertheless, it is believed that PRC government will step up imperative policies and positive monetary and fiscal measures to solidify the economy in China and to seek sustainable economic growth by way of capital spending in infrastructure and manufacturing and supporting digital economy, to bolster market confidence for domestic demand and to make domestic consumption as impetus into future economic growth, that will underpin leasing activities of office and retail sectors.

In Beijing, it is expected that it is positioned to further develop the retail market and continue to create a better consumption atmosphere and promote consumption city through new brands and environmental upgrade. To maintain occupancy rate and recurring revenue, the Group will endeavor to actively adjust leasing and marketing strategies, to upgrade refurbishment, brand portfolios and leasing services alongside competitive and effective rental strategies to attract new retailers/tenants and retain existing retailers/tenants.

In Shanghai, it is expected that the continuing new supply of office spaces combined with weak demand for office will add further pressure on rents and occupancy levels, which will be another challenging year for the office market. And the Group will continue to deploy its competitive and effective rental strategies from time to time with fitting-out subsidies, value-added services and increase more flexible leasing terms, to attract new tenants and retain existing tenants so as to maintain occupancy rate and recurring revenues.

The metropolis Shenzhen, being the official Shenzhen Demonstration Pilot Zone and high-tech hub as well as the mainland’s top city for overall economic and digital competitiveness and premier special economic zone, is expected to continue its growth with high-quality development under official support. In addition, the development of transportation network in Shenzhen stimulates intra-city and intercity connections, enhancing the cross-boundary flows of people, logistics, information, and capital, that it acts as the core and pivotal role in the development of Guangdong-Hong Kong-Macao Greater Bay Area.

Meanwhile, the real estate market is primarily impacted by the ongoing policy restrictions on purchasing eligibility and financing, economic uncertainties and challenges with softened market sentiment, yet the outlook for Shenzhen’s property market is expected to regain economic growth and remain positive as highly livable city, supported by the strong economic and demographics fundamentals along with official supportive reform. This will enhance the development value of the Group Allocated Land in Tung Kok Tau, Nanshan District, Shenzhen.

The Group will continue to seek PRC legal advice and to further strive for the best interest of the Group in relation to Zhen Wah and its assets in respect of Historical Disputes. Meanwhile, the Group will continue to work with the relevant parties to optimise city planning of the Group Allocated Land in line with the projects of adjacent opera house and infrastructure.

Appreciation

The Board would like to thank the shareholders, bankers, customers, suppliers of the Group and other stakeholders who have extended their continued support to the Group and all staff of the Group for their contributions to the Group in the period.

Dr. TAN Lucio C.
Chairman

Hong Kong, 28 February 2024

Interim report for the six months ended 31 December 2023