Dynamic Holdings Limited
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On behalf of the board (the “Board”) of directors (the “Directors”) of Dynamic Holdings Limited (the “Company”), I hereby present to the shareholders the management statement including, among others, discussion and analysis of the performance and the unaudited condensed consolidated financial statements of the Company and its subsidiaries (the “Group”) for the six months ended 31 December 2021, which have been reviewed by external auditor of the Company, Deloitte Touche Tohmatsu.

Interim Results

For the six months ended 31 December 2021, the Group reported a total revenue of HK$42,989,000 (2020: HK$42,337,000) and gross profit of HK$29,901,000 (2020: HK$29,607,000), representing slight increase of about 2% and 1% respectively compared with those of the previous corresponding period. These results were attributable to the gross profit margin of about 70% (2020: 70%) in respect of the 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 of HK$11,926,000 (2020: HK$19,384,000), which arose mainly from imputed and bank interest income in the sum of HK$9,983,000 (2020: HK$9,431,000) with net exchange gain of HK$1,238,000 (2020: HK$5,995,000) due to the slight appreciation of RMB against Hong Kong dollar (“HKD”). In addition, the Group recognised an aggregate increase of HK$48,041,000 (2020: an aggregate decrease of HK$84,669,000) in the fair value of the investment properties under improved infrastructure nearby and market sentiment.

Taking into account of the increase in fair value of the investment properties together with the related effect of deferred taxation in the period, the Group recorded a profit for the period attributable to shareholders of the Company in the sum of HK$48,534,000 (2020: loss of HK$34,086,000), with basic earnings per share of 20.42 Hong Kong cents (2020: basic loss per share of 14.34 Hong Kong cents).

In addition, due to exchange difference on currency translation to presentation currency in HKD from functional currency in RMB, which appreciated against HKD by about 1.7% (2020: 7.9%) in the period, the other comprehensive income was HK$39,663,000 (2020: HK$172,215,000), and the total comprehensive income attributable to shareholders of the Company amounted to HK$87,425,000 (2020: HK$134,950,000) in the period.

Interim Dividend

The Directors have declared an interim dividend of 0.5 Hong Kong cents (2020: 1 Hong Kong cent) per share for the six months ended 31 December 2021 to the shareholders of the Company whose names appear on the register of members on Friday, 8 April 2022. The warrants for the interim dividend are expected to be despatched to those entitled on or about Friday, 29 April 2022.

Business Review

In the period under review, the overall revenue and results of the Group were principally derived from its operating segment in property rental generated from its investment properties in mainland China (the revenue of which was denominated in RMB), which performance improved in terms of appreciation in fair value as compared with those of the last corresponding period as a result of better infrastructure nearby and stable business environment and positive leasing sentiment under effective containment of the COVID-19 pandemic in mainland China.

The rental income of the Group generated from its investment properties in two major cities, Shanghai and Beijing, was in the amount of RMB35,499,000 (2020: RMB36,852,000), showing a drop of about 4% as compared with that of last corresponding period. Such rental income presented in the financial statements in the sum of HK$42,989,000 (2020: HK$42,337,000), which represented all (2020: 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 an increase in the sum of RMB39,671,000 or equivalent to HK$48,041,000 (2020: a decrease of RMB73,700,000 or equivalent to HK$84,669,000) in the period under improved infrastructure nearby and market sentiment. As such, the results of property rental segment recorded a profit of RMB64,141,000 (2020: a loss of RMB46,270,000), presenting in a profit of HK$77,675,000 (2020: a loss of HK$53,156,000). 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 RMB24,471,000 (2020: RMB27,430,000), showing a drop of about 11% as compared with that of the last corresponding period.

In Beijing, the rental income generated from the well-established community mall of the Group in Chaoyang District increased together with average occupancy rate about 79% (2020: 78%) throughout the period. The rental income of this segment in the period totaled RMB13,606,000 (2020: RMB11,460,000) showing a rise of about 19%, as compared with that of the last corresponding period. It translated into HK$16,477,000 (2020: HK$13,165,000) which accounted for 38% (2020: 31%) of the total revenue of the Group. The rise of rental income is mainly due to gradual recovery in consumption with consumer’ confidence after swift control of pandemic. Meanwhile, the fair value of these investment properties slightly increased in the sum of RMB6,730,000 (2020: devalued RMB13,700,000), translating into HK$8,150,000 (2020: devalued HK$15,739,000). After taking into account of the changes in fair value of these investment properties and relevant costs, a profit of HK$17,838,000 (2020: a loss of HK$5,505,000) was recorded in the segment results in the period.

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 80% (2020: 77%) in the period, whereas the rental income was in the sum of RMB21,893,000 (2020: RMB25,392,000), showing a drop of about 14%, as compared with that of the last corresponding period. It translated into HK$26,512,000 (2020: HK$29,172,000) which accounted for 62% (2020: 69%) of the total revenue of the Group in the period. The drop in rental income was due to keen competition of office leasing and relocation of major tenants under supply influx particularly in decentralised areas. In the period, with the opening of new metro line and station and the improved infrastructure nearby, the prime location of Eton Place has been further enhanced. As such, the fair value of which increased in the sum of RMB32,941,000 (2020: devalued RMB60,000,000), translating to HK$39,892,000 (2020: devalued HK$68,930,000). After taking into account of the changes in fair value of these investment properties and relevant costs, the above segment recorded a profit of HK$59,837,000 (2020: loss of HK$47,651,000) in the period.

During the period under review, Shenzhen Zhen Wah Harbour Enterprises Ltd. (“Zhen Wah”, a joint venture in which the Company holds 49%), which holds interests in a piece of land located in Tung Kok Tau, Nanshan District, Shenzhen (the “Existing Land”), continued its proceedings of compulsory liquidation (the “Compulsory Liquidation”) commencing in July 2016 under supervision of Shenzhen Intermediate People’s Court of Guangdong Province (廣東省深圳市中級人民法院) (the “Court”) and management of a liquidation committee (the “Liquidation Committee”) as appointed by the Court.

In the period, the Group continued to closely monitor the Compulsory Liquidation with the assistance of its legal advisers. Meanwhile, the Group worked actively with the Liquidation Committee, relevant official authorities and Chinese joint venture partner regarding the Compulsory Liquidation, re-zoning, reclamation and outstanding issues of the Existing Land for swap of the land (the “Land Swap”) by virtue of the official agreement for the Land Swap (the “Agreement”) previously entered into between 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”) and Zhen Wah in 2019 in accordance with the relevant laws and regulations. In the period, Zhen Wah has entered into the supplemental agreement to the Agreement with the Bureau to conclude the outstanding issues including but not limited to reclamation issue and charges for the Land Swap, in return for signing the land use right transfer agreement for the New Land to Zhen Wah.

Pursuant to the Agreement and its supplemental agreement, Zhen Wah and the Bureau agreed to the Land Swap such that the Existing Land was surrendered to the Bureau (the “Surrender Land”) in return for a new piece of land situated in Tung Kok Tau, Nanshan District, Shenzhen (the “New Land”), to be granted by the Bureau to Zhen Wah without additional land premium payable subject to the terms and conditions as set out therein.

In the period, the Group kept on working closely with the relevant parties for various appropriate applications and approvals as required for the Land Swap in accordance with the Agreement after delivery of vacant possession of the Surrender Land, and in alignment with city planning near the New Land including but not limited to an opera house project and metro lines and station nearby. The New Land comprises two adjoining plots of land with total site area of approximately 109,000 square metres and land usage as residential, commercial including office and supporting ancillary facilities, of which the total developable gross floor area is approximately 395,000 square metres for multi-purpose development.

As disclosed in the last annual report, an agreement with the relevant official authorities was concluded for demolition, relocation and compensation of those buildings, erections and equipment on the Surrender Land (the “Relocation Compensation Agreement”) subject to, among others, settlement of any economic disputes between Zhen Wah with ex-tenant(s) or any third party(ies) arising therefrom in accordance with the relevant applicable laws, regulations and rules of the People’s Republic of China (the “PRC”). In May 2021, an ex-tenant had lodged an administrative proceeding with the Court against the relevant official authorities concerning with the Surrender Land as defendants and joining Zhen Wah as a third party, opposing the Relocation Compensation Agreement and claiming for compensation. In the period, the said administrative proceeding was subsequently subdivided by several separate new administrative proceedings in accordance with the relevant administrative procedure law by the ex-tenant as the plaintiff, each of which Zhen Wah was named as a third party. The reasons for claiming for compensation remained unchanged. As advised by the Liquidation Committee and the Group’s PRC legal adviser, Zhen Wah has defence to the claims under the administrative proceedings on the basis that the claims are lacking in factual and legal basis. The Liquidation Committee together with the Group and the Chinese partner of Zhen Wah 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.

As further announced on 19 January 2022, the Court accepted the application lodged by the Liquidation Committee to further extend the period of Compulsory Liquidation of Zhen Wah for six months up to July 2022.

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 2021, the equity attributable to owners of the Company amounted to RMB1,841,031,000 (30 June 2021: RMB1,802,869,000) with net asset value per share of RMB7.75 (30 June 2021: RMB7.58), translating to HK$2,251,750,000 (30 June 2021: HK$2,166,702,000) with net asset value per share of HK$9.47 (30 June 2021: HK$9.12). Total bank borrowings of the Group amounted to about HK$93,749,000 (30 June 2021: HK$95,667,000), which were secured in Hong Kong dollars and repayable within two years on floating rate basis. As at 31 December 2021, the gearing ratio of the Group was 4.2% (30 June 2021: 4.4%) 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$1,238,000 (six months ended 31 December 2020: HK$5,995,000) and exchange difference on translation functional currency of RMB to presentation currency of HKD, amounting to other comprehensive income of HK$39,663,000 (six months ended 31 December 2020: HK$172,215,000) 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 at 31 December 2021, the bank balance and cash and fixed bank deposits of the Group stood at HK$324,728,000 (30 June 2021: HK$311,172,000) in aggregate and denominated primarily in RMB. With sufficient cashflow, the Group maintained un-utilised credit facilities of HK$11,000,000 (30 June 2021: HK$11,000,000) as working capital at floating interest rate. The Group’s net current assets amounted to HK$206,416,000 (30 June 2021: HK$198,291,000) with current ratio of 2.28 as at 31 December 2021 (as at 30 June 2021: 2.28). And no significant capital expenditure commitments and authorisations was made in the period.

Pledge of Assets and Contingent Liabilities

As at 31 December 2021, the Group pledged its properties with a total carrying value of HK$861,057,000 (30 June 2021: HK$805,211,000), 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 to financial institutions as security against general banking facilities granted to the Group, and also pledged certain of its bank deposits in the sum of HK$28,398,000 (30 June 2021: HK$28,362,000) to banks to secure banking facilities and home loans granted to the home buyers of property project of the Group. As at the end of the reporting period, the Group has given guarantees in respect of settlement of home loans provided by banks to the home buyers of a property project in Beijing. As at 31 December 2021, the Group had given guarantees in respect of such home loans of HK$39,000 (30 June 2021: HK$71,000). The Directors of the Company consider that the fair values of these financial guarantee contracts at their initial recognition and at the end of the reporting period are insignificant on the basis of the low loan ratio.

Prospects

Looking forward, the economic growth in China will face challenges related to sporadic COVID-19 outbreaks with strict curbs, downturn of property market and crackdown on debts and financing in mainland China as well as global economic downside risk. Yet, it is believed that China will adopt expedient official effort associated with fiscal, monetary, economic and social measures to leverage its huge domestic market and rising urbanisation rate under low-carbon economy, focusing on a robust domestic demand, digital innovation and infrastructural development to boost reliance on consumption and services that will underpin leasing activities of office and retail sectors.

In Beijing, it is expected that the 2022 Winter Olympics will make white economy boom and retail momentum in winter-themed activities and consumption. On the other hand, the official double reduction policies for after-school training centers and institutions will suppress the leasing rental and occupancy of the mall of the Group. To safeguard tenants and maintain occupancy rate and recurring revenue, the Group will endeavor to actively adjust leasing and marketing strategies, to revamp brand’s portfolios and leasing services alongside with competitive and effective rental strategies to attract new retailers/tenants and retain existing retailers/tenants.

In Shanghai, with the development of new business districts and supply influx in decentralised areas, it is expected that the net demand for office space in core business districts will continuously encounter keen competition, putting pressure on office rental income on core business location such as Lujiazui, overall occupancy and rental growth. Yet, it is believed that the new metro line and station near Eton Place opened in the period will enhance its prime location for leasing. Meanwhile, the Group will continue to deploy its competitive and effective rental strategies from time to time to attract new tenants and retain existing tenants so as to enhance our rental level and leasing rate.

The metropolis Shenzhen, being the official Shenzhen Demonstration Pilot Zone and high-tech hub with recent unveiled reform for greater economic autonomy across finance, data, transport, medicine and health, education and culture, is expected to pioneer as a world-class center of cutting-edge innovation, entrepreneurship and advanced technology with high-quality development under official support, and act as the core engine for the development of Guangdong-Hong Kong-Macao Greater Bay Area. Meanwhile, the Shenzhen government implemented a series tightening policies on property market to soften market sentiment, with a long-term mechanism for the smooth functioning and healthy development of the property market. Overall, the outlook for Shenzhen’s property market is expected to remain positive, supported by the strong economic and demographics fundamentals. This will enhance the sustainable development value of the New Land in Tung Kok Tau, Nanshan District, Shenzhen. The Group will continue to act proactively for safeguarding the best interests of the Company in relation to Zhen Wah and its assets. It will keep on adopting the best available measures and take expedient action with a view to protecting the Company’s best interests in the context of the Compulsory Liquidation. The Group will closely monitor the development of the Compulsory Liquidation and continue to seek PRC legal advice and to further strive for the best interest of the Group in Zhen Wah and its assets.

Meanwhile, the Group will continue to work with the relevant parties to monitor and procure the progress of Land Swap and to optimise city planning of the New Land in line with the projects of opera house and infrastructure nearby. However, there is no assurance that the Land Swap can be completed without further significant delay and impediments, or that the execution of the relevant land contract will not arise.

Based on the PRC legal advice received by the Group, assets of Zhen Wah will eventually be sold by way of public auction or disposed of by other applicable means subject to endorsement of the PRC court upon receipt of proposal of the Liquidation Committee in accordance with the PRC laws, and any surplus (after settlement of all relevant liabilities including taxation) will be distributed to the joint venture partners in accordance with their equity contributions. However, the issues involved in the Compulsory Liquidation are complex and sophisticated, involving not only the PRC court but also various government authorities. There is no assurance that the Compulsory Liquidation will not be subject to significant delay, oppositions, obstructions and further dispute or litigation with respect to the matters of Zhen Wah and/or its assets.

Appreciation

The Board would like to thank the shareholders, bankers, customers, suppliers of the Group and others 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, 25 February 2022

Interim report for the six months ended 31 December 2021


Dr. TAN Lucio C., Chairman


Eton Place


Uptown Mall


Chaoyang Garden