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Public company info - Tai United Holdings Limited , 00718.HK

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Tai United Holdings Limited, 00718.HK - Company Profile
Chairman -
Share Issued (share) 5,250,000,000
Par Currency Hong Kong Dollar
Par Value 0.05
Industry Investments & Assets Management
Corporate Profile Business Summary: The major businesses of the Group include (i) financial services and asset management; (ii) commodity and medical equipment trading; (iii) property investment; and (iv) mining and exploitation of natural resources. Performance for the year: For the year ended 31 December 2019, the revenue and the net investment losses of the Group were approximately HK$26.5 million and HK$0.6 million, down by 99.4% and 99.7% when compared to approximately HK$4,314.2 million and approximately HK$186.3 million for the last year respectively. The Group has recorded a substantial decrease in loss attributable to owners of the Company from approximately HK$553.2 million for the last year to approximately HK$246.4 million for the year under review. The Group’s basic loss per share for the year ended 31 December 2019 was narrowed to 4.69 HK cents (2018: loss per share of 10.54 HK cents). Business Review (1)Financial Services and Asset Management Financial Services In late 2016, a subsidiary of the Company had invested in a segregated portfolio of a fund portfolio company (“Fund”). The major revenue contribution in financial services business was the effective interest income from a loan note investment by the Fund, which, for accounting purpose, had been consolidated into the Group’s financial statements over the last two years. Details of which were set out in the Company’s announcement dated 15 December 2016 and the Company’s annual reports for the year ended 31 December 2017 and 2018. Since such loan note receivable was fully redeemed in 2018, no effective interest income was recorded as revenue during the year ended 31 December 2019. The respective income for the year ended 31 December 2018 was approximately HK$130.6 million. Nevertheless, the Group recorded approximately HK$23.6 million profit in this business, which was attributed to a final redemption proceeds receiving from the Fund for the year under review whereas approximately $85.7 million profit was recorded for the last year. Distressed Debt Assets Management The Group’s onshore professional team has been proactively tapping into the value gap of distressed debt assets in the People’s Republic of China (“PRC” or “China”), building up various investment channels and acquired quality distressed bank loan portfolio strategically through public tenders, in a bid to maximise its overall revenues by integrating features of individual debtor and collaterals for different disposal methods. In 2019, the distressed debt assets market has grown significantly as outstanding nonperforming loans of China’s commercial banks reached RMB2.41 trillion by the end of the fourth quarter of 2019, according to the China Banking and Insurance Regulatory Commission. Besides the big four asset management companies established in the 1990s to participate in this growing market, considerable number of provincial level licensed distressed asset management companies were established in the last 3 years. Rapid growth in the number of local asset management companies has brought keen competition into this market, and thus lower the profit margin. At the same time, the risk in the distressed debt assets market has gradually increased as China’s economy grew by 6.1 per cent in 2019, the lowest annual growth rate for 29 years, according to the National Bureau of Statistics. Under the impacts of decreasing margin and increasing investment risk, potential distressed assets projects sourcing by the Group's professional team may not be considered commercially viable. Beginning in 2018, the Group has been reshuffling the investment portfolios of and realised certain capital gain from its various investments including distressed debt assets, with a view to maximizing the returns to the shareholders of the Company (“Shareholders”) and carrying out better risk management. Since the commencement of the distressed debt assets management business in April 2016, the Group has recovered from the sale of distressed debt assets investment in the aggregate of approximately HK$1,265.9 million for the nine months ended 31 December 2016 and for the year ended 31 December 2017 and 2018 (“Previous Three Financial Years”). Notwithstanding that the performance of this business was satisfactory in the Previous Three Financial Years, the macro-economic environment in midst of the trade war has becoming increasingly uncertain. Accordingly, the Board considers that such disposals of the distressed debt assets offer a prime opportunity for the Group to realise the value in those assets and restore the financial position of the Group in a timely and appropriate manner. Against the backdrop of increasing competition in the distressed debt asset management industry and uncertain market conditions as a result of the continuous trade dispute between the PRC and the US, the Group has disposed of all of its distressed debt assets held as at 31 December 2018 in the year of 2019 and held no distressed debt assets measured at fair value as at 31 December 2019, as compared to approximately HK$10.2 million at the end of last year. It was the result of the continuous execution of the investment strategy adopted in last year amid trade dispute between US and the PRC, with an aim to maximising the returns to the Shareholders and carrying out better risk management, by reshuffling the investment portfolios of and realised capital gain from its various investments or mitigating risks attached to certain specific type of asset. For the year ended 31 December 2019, the Group recorded no net investment gain or loss in this business, comparing to net investment loss of approximately HK$13.3 million for the last year ended, which was attributed to the distressed debt assets were disposed of at their respective carrying values. As a result, the business incurred a loss of approximately HK$5.3 million for this year, mainly representing the overhead costs of the business operation, whereas the loss of approximately HK$31.2 million for the last year. Securities Investment Leveraging on the strategic geographical location of Hong Kong and the development of the PRC investment market, the Group carried out securities investment business in secondary market with its internal funds. With listed shares of large-scale and quality companies as primary investment targets, the Group aims to pursue capital appreciation and stable dividend income. During 2019, the Group scaled down the size of the investment portfolio in this business due to the volatile financial and investment markets caused by US-China trade dispute. Also, the volatile financial and investment market has been reinforced by on-going largescale protests in Hong Kong since the summertime. Such factors have been driven the Directors to take a defensive stance in identifying investment opportunities particularly in the Hong Kong stock market, in order to bolster corporate resilience against any possible issues and threats arising from international or region crisis. As at 31 December 2019, the carrying value of the listed securities investment was approximately HK$10.1 million, whereas no listed securities investment was held as of the year ended 31 December 2018. Such listed securities investment held by the Group was all listed equity securities in Hong Kong, which none of them was with a carrying value of 5% or more of the total assets of the Group. The Directors believe that the holding of such investments portfolio is in line with the Directors’ prudent investment strategy in view of the prevailing investment environment in the region. Benefit from the prudent investment approach, the Group recorded 99.6% decrease in the net investment loss arising from the change in fair value of securities investment of approximately HK$173.0 million for the last year to approximately HK$0.6 million for this year. As a result, this business recorded approximately HK$8.8 million loss, representing a decrease of 96.3% as compared to the loss of approximately HK$238.3 million for the last year ended. (2)Commodity and Medical Equipment Trading Commodity Trading Price of crude oil and petroleum product in 2019 has been considered by industry experts as virtually impossible to confidently forecast by market participants, as it was affected by a number of risk factors in connection with international relations, geopolitical and military affairs. Oil price has soared since the start of 2019, due to various factors such as OPEC-led (Organization of the Petroleum Exporting Countries) supply cuts, US sanctions on oil exporters Iran and Venezuela and escalating fighting in Libya. On the other hand, alongside with concerns over the health of the global economy, surging US crude inventories appeared to have capped further gains. Several months later in September 2019, oil price experienced their largest single-day price increase since 2008, due to an attack on key energy installations in Saudi Arabia. Such price increase was short lived as Saudi Arabia’s ability to bring production back online within weeks of the attack and global concerns about demand growth. Oil price was volatile and majority of the market participants might not be reasonably expected to predict the timing and extent of these military actions and rivalries in world politics. In order to reduce the investing risk to which the Group was exposed, the management of the Company (“Management”) decided not to have trading activities in the oil and other commodities market in the year 2019, until uncertain factors of instability have been moderated. As a result, the Group recorded no revenue generated from commodity trading for the year ended 31 December 2019, as compared to last year of approximately HK$4,045.5 million. The Commodity Trading business therefore recorded a loss of approximately HK$7.2 million, comparing to a loss of approximately HK$11.2 million for the last year. Medical Equipment Trading The Group carries out medical equipment trading business in China for which majority customers are hospitals. The revenue of the business for the year ended 31 December 2019 decreased by 49.7% to approximately HK$20.0 million, as compared to approximately HK$39.8 million of last year. Such decrease was primarily attributable to high competition in this low end market, because the selling products of the business are mostly general medical equipment and consumable goods. As a result, the loss of the business increased from approximately HK$0.1 million for the last year to approximately HK$1.6 million for the current year. (3)Property Investment The Group operates the property investment business in Hangzhou, the PRC and London, the United Kingdom, in order to seize the market development opportunities of real estate in major developed regions both onshore and offshore. The Group has been pursuing to maintain high quality property management services of its investment properties and will continue to enhance the quality of the property management services in order to increase rental income and saleable value of its investment properties. In addition, the Group is actively looking for property investment and development opportunities to strengthen the revenue stream of this segment. The revenue generated from property investment for the year ended 31 December 2019 decreased 93.1% to approximately HK$6.6 million, as compared to approximately HK$95.4 million of last year. Such decrease was mainly attributable to the absence of the rental income contribution from the Hangzhou Property (as defined below) amounting to approximately HK$64.7 million since 1 January 2019, due to the disposal of a subsidiary holding the Hanzhou Property. The loss of approximately HK$72.5 million arising from the changes in fair value of investment properties recognized during the year, and led to an overall loss of the segment amounting to approximately HK$107.1 million, as compare to a loss of approximately HK$112.7 million for the last year. On 31 August 2018, Hangzhou Tai Rong Asset Management Co., Ltd.* (“Hangzhou Tai Rong”), an indirect wholly owned subsidiary of the Company, which is holding an investment property located at No. 555 Fengqi Road, Hangzhou City, Zhejiang Province, the PRC (“Hangzhou Property”) entered into a sale and purchase agreement (“SPA”) in associated with other parties. Pursuant to which, the issued shares of Hangzhou Tai Rong and the entire shareholder’s loan owing by Hangzhou Tai Rong to its owner was to be disposed at the consideration of RMB1,550 million (“Consideration”). Since then, the Hangzhou Property was reclassified under the item of “Assets classified as held-for-sale” in the consolidated statement of financial position. On 25 August 2019, a supplemental agreement to SPA (“Supplemental SPA”) was entered among the parties. Pursuant of which, the parties have mutually agreed to amend certain terms of the SPA. For the year ended 31 December 2019, the disposal of Hangzhou Tai Rong has generated an one-off gain on disposal before taxation of approximately HK$168.1 million. Details of the disposal of Hangzhou Tai Rong are set out in the paragraph headed “Material Disposal” and note 20 to the consolidated financial statements in this results announcement. (4)Mining and Exploitation of Natural Resources Currently, the Group holds four mining right licences (“Mining Rights”) of three tungsten projects (“Tungsten Projects”) in Mongolia. The Group completed the acquisition of the Mining Rights on 31 December 2009 by way of acquiring the entire issued share capital of the ultimate holding companies of the Mining Rights, namely, Prolific Rich Limited and Grand Shining Limited at an aggregate acquisition cost of HK$940 million. The acquisition cost was satisfied by (i) cash payment of HK$102 million; (ii) the issue of the promissory notes in the principal amount of HK$23 million; and (iii) issue of the 2,716,666,666 convertible preference shares of the Company in the principal amount of HK$815 million. Details of which were set out in the Company’s announcements dated 5 June 2009, 23 July 2009 and 29 September 2009 and the Company’s circular dated 31 October 2009. To assist the Company to conduct the impairment testing on the Mining Rights in 2019, the Management engaged an independent qualified mineral technical adviser, to prepare a second phase of updated resource estimation technical report under the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“JORC Code”) (“Second Phase Updated Estimation Technical Report”), riding on the last resource estimation technical report dated in February 2019 (“First Phase Updated Estimation Technical Report”). The Second Phase Updated Estimation Technical Report was made available to the Management in February 2020. Based on the findings of the Second Phase Updated Estimation Technical Report, the Group engaged a PRC professional firm to update the feasibility study report and also engaged an independent international qualified professional valuer, to perform the valuation related to the Mining Rights at 31 December 2019 based on the Second Phase Updated Estimation Technical Report and the latest feasibility study report. The valuation of the Mining Rights for the year ended 31 December 2019 was mainly affected by the following factors: (i) the updated estimation of average grade (which was prepared in accordance with JORC Code) of the Mining Rights drops in the Second Phase Updated Estimation Technical Reports, as compared to the First Phase Updated Estimation Technical Report; and (ii) the market price of tungsten in 2019 has dropped and the valuer forecasted the future market price of tungsten will have a lower growth rates, which resulted in a lower valuation of the Mining Rights. With reference to the valuation of the Mining Rights performed by the valuer (details of which are shown below) and the information available to the Group up to the date of this results announcement, the Directors were of the view that impairment losses of the Mining Rights amounting to approximately HK$170.8 million (2018: approximately HK$109.7 million) for the year ended 31 December 2019 need to be recognised for the cash-generating unit that holds the Mining Rights (“Mining CGU”) in the consolidated statement of profit or loss and other comprehensive income as the recoverable amount of the Mining CGU was lower than (2018: lower than) its carrying amount. Further details of the impairment losses on the Mining CGU are set out in note 14 to the consolidated financial statements contained in this results announcement. Material Disposals Disposal of Hangzhou Tai Rong On 15 June 2018, the Company entered into a memorandum of understanding (“MOU”) with an independent third party (“Proposed Purchaser”), pursuant to which, it was proposed that the Company would sell its all indirect interest in the issued shares of Hangzhou Tai Rong and the entire shareholder’s loan owing by Hangzhou Tai Rong to its owner, which also an indirect wholly owned subsidiary of the Company, Xizang Hongrong Asset Management Co., Ltd.* (“Xizang Hongrong”), to the Proposed Purchaser. Hangzhou Tai Rong is a property holding company and holding the Hangzhou Property under the MOU. SPA was signed between Xizang Hongrong, Hongrong Investment Holdings (Shenzhen) Co., Ltd.*, Hangzhou Tai Rong and another third party purchaser, which is a nominee of the Purposed Purchaser (“Hangzhou Property Purchaser”) on 31 August 2018 at the Consideration for such disposal (“Tai Rong Disposal”). Given that the Tai Rong Disposal constituted a major transaction under Chapter 14 of the Rules Governing the Listing of Securities (“Listing Rules”) on The Stock Exchange of Hong Kong Limited (“Stock Exchange”), it would be subjected to the reporting, announcement and shareholders’ approval requirements. On the same date of signing SPA, the Company’s substantial shareholders had given their written consents on approving the Tai Rong Disposal, no special general meeting of the Company was convened. In order to allow greater flexibility to the Hangzhou Property Purchaser for settlement of the Consideration and the interest and security arrangement seek to protect the interest of the Group and incentivise the Hangzhou Property Purchaser to settle the remaining Consideration as soon as possible, the parties entered into Supplemental SPA on 25 August 2019 to amend certain terms of the SPA. The registration of the transfer of the issued shares of Hangzhou Tai Rong with the local administration for industry and commerce bureau was completed on 31 October 2019. Details of the Tai Rong Disposal were set out in the Company’s announcements dated 15 June 2018, 28 August 2018, 31 August 2018 and 25 August 2019, and the Company’s circular dated 26 October 2018. Prospects: The economic outlook of the year 2020 seems to be dominated by various downside risks, while the International Monetary Fund lowered global economic growth forecast in 2020 by a 0.1 percentage point to 3.3 percent in its January update to the World Economic Outlook. During the first few weeks of 2020, certain risks, whether identified by market participants or not, have been materialized as Iran launched missiles against US military bases, following by the outbreak of coronavirus disease, COVID-19. Management of the Group will closely monitor the events from which these risks arising, include but not limit to, US president election, global trade disputes, trade negotiation between UK and European Union (“EU”), power distribution in EU after Brexit, and global climate change, as well as government policies addressing those risks, and their effects on the valuation of different classes of assets. These risks could damage global economic growth this year and hence the valuation of certain assets in different markets and regions, but a sharp and rapid economic rebound could follow with the support of fiscal and monetary policy. The Management is in the course of exploring possible investment opportunities and other business models or other forms of investment that the Group, on the one hand, can generate income and, on the other hand, can reduce/control the risk exposure of the Group. The Group will seize market opportunities brought by these risks and challenges, and continue to consolidate the development results of each business segment. With professional management expertise, an insightful business strategy, stable and conservative financial position, the Group is well-positioned for sustainable and healthy growth in the chosen market segments in which it operates and strives to reward its shareholders with fruitful returns.

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