中华国际(01064) - 2024 - 中期财报

Company Information Core Company Information This report outlines core corporate information including board members, company secretary, registered office, principal bankers, auditors, and legal advisors - The report provides key contact and entity information for corporate governance and operations, including Executive Director Ho Kam Hung, Ernst & Young as auditors, and legal advisors in Hong Kong and Bermuda[4] Management Discussion and Analysis Financial Review Revenue for the period was HK$14.26 million, a slight decrease year-on-year, while net loss significantly narrowed to HK$9.58 million due to a substantial prior-year de-recognition loss, maintaining a low debt-to-asset ratio of 0.10 and HK$78.76 million in cash and bank balances Key Financial Performance (HK$ Thousand) | Metric | H1 2024 (Unaudited) | H1 2023 (Unaudited, Restated) | | :--- | :--- | :--- | | Revenue | 14,259 | 14,624 | | Net Loss Attributable to Owners of the Company | (9,583) | (480,475) | - Adjusted EBITDA was a profit of HK$0.331 million, a decrease from HK$2.822 million (restated) in the prior period, primarily due to additional professional fees incurred for the delayed release of the 2023 annual results announcement[7] - Loss before tax significantly decreased from HK$1.752 billion (restated) in the prior period to HK$28.09 million, primarily due to no de-recognition loss of a former subsidiary recorded in the current period[8] Key Financial Position (HK$ Thousand) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and Bank Balances (HK$ Thousand) | 78,763 | 90,761 | | Debt-to-Asset Ratio | 0.10 | 0.10 | Prior Period Adjustments Due to the loss of control over former subsidiary Guangzhou Zhengda, its deconsolidation from May 15, 2023, resulted in a significant non-cash loss of approximately HK$1.708 billion in 2023 and restatement of comparative financial data, alongside a correction to share option exercise accounting that did not impact total equity - The Board determined that the Group lost control over Guangzhou Zhengda from May 15, 2023, due to the court's appointment of a new liquidation committee, leading to its deconsolidation from the financial statements[14][15] - The deconsolidation of Guangzhou Zhengda resulted in a significant non-cash and unrealized loss of approximately HK$1.708 billion, which had no impact on the Group's liquidity, and its equity interest was reclassified as a financial asset at fair value through profit or loss[15] - Accounting entries for shares issued in January 2023 due to share option exercises were restated to correct transfers between reserve accounts, with no impact on total equity[16] Interim Dividend and Share Option Scheme The Board does not recommend an interim dividend for the period, and as of the reporting period end, 5,000,000 unexercised share options remain outstanding - The Board does not recommend an interim dividend for the six months ended June 30, 2024 (H1 2023: nil)[17] - As of June 30, 2024, 5,000,000 share options remain unexercised with an exercise price of HK$0.09 per share, exercisable until December 1, 2025[18] Fundraising Activities The company completed a new share issuance in April 2020, raising net proceeds of HK$16.1 million, with HK$12.0 million remaining unutilized at the period end, originally earmarked for the Guangzhou redevelopment project, which the Board will now consider reallocating due to Guangzhou Zhengda's deconsolidation Use of Proceeds from Share Issuance (HK$ Million) | Intended Use | Net Proceeds (HK$ Million) | Utilized (HK$ Million) | Unutilized (HK$ Million) | | :--- | :--- | :--- | :--- | | Cost of Guangzhou Redevelopment Project, China | 12.0 | – | 12.0 | | General Working Capital | 4.1 | 4.1 | – | | Total | 16.1 | 4.1 | 12.0 | - As Guangzhou Zhengda is no longer a subsidiary of the Group, the Board will consider reallocating the HK$12.0 million originally designated for its redevelopment project to other uses, with a separate announcement to follow once a decision is made[20] Business Review The Group's core business involves property development, investment, and management in mainland China, actively exploring investment opportunities related to 'new quality productive forces,' with Chongqing Gangyu Plaza providing stable cash flow despite uncertainties from legal disputes concerning the Guangzhou property development project - The Group primarily engages in property development, investment, and management in mainland China, continuously exploring investment opportunities in projects related to 'new quality productive forces'[22] Property Investment Chongqing Gangyu Plaza commercial building serves as a stable cash flow source for the Group with high occupancy, providing essential working capital, and the Board is confident it will continue to generate stable income in the foreseeable future - Chongqing Gangyu Plaza property, with a total gross floor area of approximately 24,400 square meters, is almost fully occupied with low shop turnover, providing stable cash flow and meeting the Group's working capital needs[23] Property Development The Guangzhou Metropolis Shoe City redevelopment project plans to develop a large commercial complex with a total gross floor area of approximately 234,000 square meters, with progress constrained by the demolition of the last building, and is expected to open earliest in early 2028 - The Guangzhou redevelopment project is planned as a 22-story multi-functional Grade A commercial complex with a total gross floor area of approximately 234,000 square meters[24] - Assuming commencement in Q1 2025, the project is expected to be completed in two phases by Q1 2029, with the earliest opening in early 2028[25] Current Status of Guangzhou Zhengda Despite deconsolidation and liquidation proceedings, Guangzhou Zhengda continues normal operations with unchanged legal title to its assets; the Group retains a 25% beneficial interest in its parent company, Hong Kong Zhengda, which maintains control over Guangzhou Zhengda's daily operations and financial activities - Despite the decision to appoint a new liquidation committee, Guangzhou Zhengda continues to operate normally, with its registration status at the Administration for Industry and Commerce remaining 'in operation (open)'[27] - The Group's 25% beneficial interest in Hong Kong Zhengda (which holds 100% equity in Guangzhou Zhengda) remains unchanged, as does the legal title to Guangzhou Zhengda's assets[27][28] Briefing on "Liquidation Petition" against Guangzhou Zhengda Management detailed the legal disputes surrounding the liquidation petition against Guangzhou Zhengda, asserting its lack of legal basis and outlining multiple legal and administrative actions taken, including lawsuits to clarify equity relationships, while stating that the liquidation procedures deviate from fundamental principles stipulated by the Supreme People's Court - Hong Kong Zhengda has filed a lawsuit with the Guangzhou Intermediate People's Court, seeking confirmation of its legal relationship and equity with relevant parties, and claiming RMB41.0 million in interest losses[30] - Management stated that, according to the Supreme People's Court's judicial interpretation, the court should have rejected the liquidation application as the applicant failed to prove "clear shareholder equity" and that "dissolution events" had occurred for the enterprise[33] - Management noted that the court did not hold a pre-liquidation hearing when processing the liquidation application and appointed a liquidation committee without a written ruling, both procedures being non-compliant[33] Significant Acquisition and Litigation Updates The Group extended the final deadline for a significant acquisition to June 30, 2026, aiming to achieve revised terms, and its subsidiary, Hong Kong Zhengda, initiated a new lawsuit against Yuexiu State-owned Assets in April 2024 - On June 24, 2024, the Group signed a new extension agreement, further extending the final deadline for a significant acquisition to June 30, 2026[35] - Subsequent to December 31, 2023, the Group's subsidiary, Hong Kong Zhengda, initiated a lawsuit against Yuexiu State-owned Assets in the Guangzhou Intermediate People's Court in April 2024[37] Outlook The Board anticipates a consolidation period in the mainland real estate market and will closely monitor trends, while actively responding to the national policy of 'developing new quality productive forces' by identifying suitable investment or business projects, and expects positive impacts from anticipated US interest rate cuts on the Hong Kong market, supporting the HKSAR government's governance according to law - The Board will actively identify suitable investment or business projects with reasonable capital budgets in response to the central government's policy of 'accelerating the development of new quality productive forces'[38] - The market widely anticipates a reduction in US federal interest rates before the November 2024 presidential election, which Hong Kong may follow, creating a new chapter for the economy[39] Employees and Remuneration Policy As of the reporting period end, the Group employed approximately 20 staff, with total staff costs of HK$3.87 million, offering competitive remuneration, employee benefits, and training development resources Employee Count | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Number of Employees | Approx. 20 | 20 | Total Staff Costs (HK$ Thousand) | Metric | H1 2024 (HK$ Thousand) | H1 2023 (HK$ Thousand, Restated) | | :--- | :--- | :--- | | Total Staff Costs | 3,870 | 3,630 | Disclosure of Interests Interests of Directors and Chief Executives Executive Director Mr. Ho Kam Hung collectively holds 117,600,000 shares in the company, representing 15.30% of the issued share capital, comprising both direct beneficial ownership and interests held through controlled corporations Share Interests of Director Mr. Ho Kam Hung | Director's Name | Capacity and Nature of Interest | Number of Shares Held | Percentage of Issued Share Capital | | :--- | :--- | :--- | :--- | | Ho Kam Hung | Held through controlled corporations | 110,600,000 | 14.39% | | | Directly beneficially owned | 7,000,000 | 0.91% | | | Total | 117,600,000 | 15.30% | Directors' Rights to Purchase Shares During the reporting period, the company did not grant any rights to its directors, their spouses, or minor children to purchase shares or debentures of the company or any other body corporate - At no time during the period were any rights granted to any director or their associates to acquire benefits by purchasing shares or debentures of the company or any other body corporate[45] Substantial Shareholders Beyond directors, the report discloses shareholdings of several substantial shareholders, including Yip Ka Lai, Ho Cham Hung, Ho Pak Hung, and Lead Talent Investment Limited, all holding over 10% of the shares Substantial Shareholders' Interests | Shareholder Name | Number of Shares Held | Percentage of Company's Share Capital | | :--- | :--- | :--- | | Yip Ka Lai (Spouse of Ho Kam Hung) | 117,600,000 | 15.30% | | Ho Cham Hung | 105,600,000 | 13.74% | | Ho Pak Hung | 99,800,000 | 12.98% | | Lead Talent Investment Limited | 108,000,000 | 14.05% | | Strong Hero Holdings Limited | 100,000,000 | 13.01% | Disclosures under Listing Rules Corporate Governance and Compliance The company largely complied with the Corporate Governance Code during the reporting period; despite all three independent non-executive directors serving over nine years, the Nomination Committee and Board assessed and confirmed their continued independence, and all directors adhered to the Model Code for Securities Transactions, with no listed securities bought or redeemed by the company during this period - The Nomination Committee and the Board believe that despite all three independent non-executive directors serving for over nine years, they maintain their independence and can provide independent, balanced, and objective advice to the company[49] - The company's unaudited condensed consolidated financial statements for the period were reviewed by the Audit Committee, and the interim report was approved by the Board on August 28, 2024[50] Unaudited Condensed Consolidated Financial Statements Condensed Consolidated Income Statement The period recorded revenue of HK$14.26 million and a loss after tax of HK$30.78 million, representing a significant narrowing of loss compared to the restated prior period, primarily due to a substantial HK$1.708 billion loss from the deconsolidation of a former subsidiary in the prior period Condensed Consolidated Income Statement (HK$ Thousand) | Item (HK$ Thousand) | H1 2024 (Unaudited) | H1 2023 (Unaudited, Restated) | | :--- | :--- | :--- | | Revenue | 14,259 | 14,624 | | Loss on disposal of a former subsidiary | – | (1,708,355) | | Loss before tax | (28,093) | (1,751,703) | | Loss for the period | (30,783) | (1,861,665) | | Basic loss per share (HK Cents) | (1.25) | (62.51) | Condensed Consolidated Statement of Financial Position As of June 30, 2024, the Group's total assets were HK$1.451 billion and net assets were HK$1.028 billion, with core non-current assets including HK$1.002 billion in 'equity interest in an entity at fair value through profit or loss' and HK$0.360 billion in investment properties Condensed Consolidated Statement of Financial Position (HK$ Thousand) | Balance Sheet Item (HK$ Thousand) | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | Non-current assets | | | | Equity interest in an entity at fair value through profit or loss | 1,002,217 | 1,030,472 | | Investment properties | 359,520 | 369,600 | | Total assets | 1,451,330 | 1,496,606 | | Net assets | 1,027,672 | 1,063,099 | Condensed Consolidated Cash Flow Statement Cash flow from operating activities for the period shifted from a net inflow of HK$5.12 million in the prior period to a net outflow of HK$3.66 million, with cash and cash equivalents at period-end totaling HK$78.76 million, a decrease from HK$90.76 million at the beginning of the period Condensed Consolidated Cash Flow Statement (HK$ Thousand) | Cash Flow Item (HK$ Thousand) | H1 2024 (Unaudited) | H1 2023 (Unaudited, Restated) | | :--- | :--- | :--- | | Cash flows from/(used in) operating activities | (3,658) | 5,117 | | Net cash flows used in investing activities | – | (560) | | Net cash flows from/(used in) financing activities | (6,088) | 10,471 | | Cash and cash equivalents at end of period | 78,763 | 95,631 | Notes to the Condensed Consolidated Financial Statements The notes to the financial statements detail accounting policies, specific impacts of prior period adjustments, operating segment information, and related party transactions, with Notes 12 and 13 being crucial for understanding the current period's financials, explaining the significant accounting impact of Guangzhou Zhengda's deconsolidation and subsequent fair value measurement Note 1: Basis of Preparation and Prior Period Adjustments These financial statements are prepared in accordance with HKAS 34; comparative figures for H1 2023 were restated due to the deconsolidation of a former subsidiary (Guangzhou Zhengda) and a correction to the accounting treatment of share option exercises, which significantly increased the H1 2023 loss - Due to the loss of control over Guangzhou Zhengda from May 15, 2023, the Group deconsolidated it and restated the financial statements for the corresponding period in 2023[59] Restatement Impact on H1 2023 Condensed Consolidated Income Statement (HK$ Thousand) | Item (HK$ Thousand) | Previously Reported | Prior Period Adjustment | Restated | | :--- | :--- | :--- | :--- | | Profit/(Loss) before tax | 2,171 | (1,753,874) | (1,751,703) | | Loss for the period | (444) | (1,861,221) | (1,861,665) | Note 2: Operating Segment Information The Group is segmented into two operating categories: property investment and development, and corporate and others, with the vast majority of revenue and results (or losses) derived from the property investment and development segment, and only one customer contributing over 10% of total revenue during the period - The Group's two reportable operating segments are (a) property investment and development and (b) corporate and others; all HK$14.26 million in revenue for the period was derived from the property investment and development segment[64][65] Note 12: Deconsolidation of a Former Subsidiary This note details the accounting treatment for the deconsolidation of Guangzhou Zhengda on May 15, 2023, which resulted in a non-cash loss of approximately HK$1.708 billion in 2023 and the reclassification of its equity interest as a financial asset at fair value through profit or loss, with an initial fair value of HK$1.014 billion - Due to the Guangdong Provincial High Court's ruling and the Guangzhou Intermediate People's Court's decision to appoint a new liquidation committee, the Board determined that the Group lost control over Guangzhou Zhengda from May 15, 2023, leading to its deconsolidation[72] - The deconsolidation of Guangzhou Zhengda resulted in a HK$1.708 billion loss, primarily from the difference between the fair value of Guangzhou Zhengda's equity interest and the original carrying amounts of its related assets and liabilities[74][76] Note 13: Equity Interest in an Entity at Fair Value Through Profit or Loss This asset represents the equity investment in Guangzhou Zhengda, with its fair value determined using the discounted net realizable value method (Level 3 fair value measurement); the period recorded a fair value change loss of HK$28.26 million, and its fair value is highly sensitive to unobservable inputs like discount rates and recovery discount rates Fair Value Movement of Equity Interest (HK$ Thousand) | Item (HK$ Thousand) | Amount | | :--- | :--- | | Carrying amount at January 1, 2024 | 1,030,472 | | Fair value change recognized in profit or loss | (28,255) | | Carrying amount at June 30, 2024 | 1,002,217 | - The fair value measurement of this equity interest is classified as Level 3, determined using the discounted net realizable value method, with a discount rate of 4.2% applied to cash flow forecasts[78] - The valuation of Guangzhou Zhengda's principal assets (investment properties and properties held for sale) utilized the residual method and market approach, applying a recovery discount rate of 25%[79]