88IV - Public company info - SOCAM Development Ltd.

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SOCAM Development Ltd., 00983.HK - Company Profile
Chairman	Lo Hong Sui, Vincent
Share Issued (share)	374,000,000
Par Currency	Hong Kong Dollar
Par Value	1.0
Industry	Construction & Decoration
Corporate Profile	Business Summary: The principal activity of the Company is investment holding. Its subsidiaries, joint ventures and associates are principally engaged in property development and investment, asset management, construction and contracting, renovation and fitting out, and investment holding. Performance for the year: The Group’s profitability returned to growth for the year ended 31 December 2019, and reported a profit attributable to shareholders of HK$7 million on a turnover of HK$5,545 million, comparing with the loss of HK$139 million and turnover of HK$6,128 million for 2018. Business Review: Amidst the headwinds of economic contraction, SOCAM’s turnaround strategy to restore shareholder value, improve cash flow and revitalise its businesses saw further progress in 2019. During the year, the Group restored profitability in its operations and successfully completed a number of acquisition and disposals, together with repurchases of senior notes, thereby strengthening the balance sheet and improving cash flow. The construction business also expanded its order book, with new contract value hitting record high in recent years. Market Environment The Group’s principal markets, namely Mainland China, Hong Kong and Macau, suffered from varying degrees of a slowing economy in 2019. In the Mainland, GDP grew at 6.1% in 2019, the slowest since 1990, though still within the Central Government’s target of 6 – 6.5%. Faced with the sluggish demand both at home and abroad and tensions in US-China trade, the Chinese authorities have been rolling out various growth stimulus measures while attempting to contain the financial and debt risks. Domestic demand has been slow to respond. The challenging external environment had no visible impact on the Mainland’s property sector during the year. The Central and local governments continued to tighten control measures and restrictions over the housing market across China, adhering to the principle that houses are “for living in, not for speculation”. Consumer spending remained robust, providing support to retail sales and hence the leasing demand for mall spaces, amid the growing challenges from online platforms. 2019 was a turbulent year for Hong Kong. Technically it has entered a recession. GDP saw consecutive quarters of year-on-year contraction in 2019 and decreased by 1.2% in real terms against 2018, the first annual decline since 2009. The social unrest since June 2019 took a heavy toll on the local economic sentiment as well as consumption, and particularly tourism-related activities. Overall investment spending plummeted due to pessimistic business sentiment and subdued economic conditions. Nonetheless, the HKSAR Government has been proceeding with its long-term housing strategy and 10-year hospital development plan to address the critical housing and healthcare issues of the community. Our construction business stands to benefit from the significant tendering opportunities thereby arising. Macau’s GDP in real terms shrank by 4.7% for 2019 as a whole, compared with the 4.7% growth in 2018. Private investment weakened, and government spending on public works decreased. Free-spending visitors from the Mainland declined as a result of the deceleration of the Mainland economy. The gaming sector remained subdued and saw a fall in gaming revenues. Improved Results During the year, net profit attributable to shareholders was HK$7 million (or a profit of HK$57 million if foreign exchange losses of HK$50 million was excluded), a turnaround from the HK$139 million loss for 2018. The improvement was achieved despite an operating environment that was in many aspects unfavourable. The construction business reported considerably higher profit margins, while the property business recorded lower disposal gains but substantial reduction in net rental expenses. The Group’s turnover for 2019 amounted to HK$5.5 billion, a 9.8% decrease as compared to HK$6.1 billion for 2018, largely attributable to relatively few new construction contracts secured in 2018 and the low level of outstanding workload at the end of 2018. The property business generated relatively lower turnover from property sales and rentals. In 2019, the construction business significantly expanded its order book with HK$11.5 billion new contracts secured, sustaining further business and profit growth in the next few years. CONSTRUCTION The Group’s construction business reported a remarkable increase in profit in 2019. Riding on its solid presence in the market, the Group has also expanded its order book notably during the year. MARKET REVIEW The contraction of the Hong Kong economy in 2019 was mainly attributable to the weak performance in both domestic and external demand. From the US-China trade disputes to the social protests carried over into 2020, not only business investment and private consumption, but overall economic activity will continue to be negatively impacted. The outbreak of coronavirus in January 2020 further casts a shadow over the economic sentiment and social life of the city. While the scarcity of developable land for affordable housing and community facilities continues to be a major community concern, significant delays in approving funding in the Legislative Council (Legco) of the HKSAR has led to a slowdown in the tendering and award of government projects. In the fiscal year 2018-19, the Legco’s Finance Committee only approved funding for public works projects in a total amount of HK$69 billion, which fell far short of the funding amount of HK$143 billion submitted for approval by the HKSAR Government. The delays have severely affected the business and development of the local construction industry, which accounts for nearly 10% of the working population. In a bid to deal with the shortage of suitable land needed to meet the public housing supply target, the HKSAR Government has pledged to adopt a multi-pronged approach to secure more housing land, auguring well for a steady flow of public housing contracts from the Hong Kong Housing Authority (HKHA) in the coming years, and will also set aside HK$5 billion to provide a total of 10,000 transitional housing units within the next three years. Under the revised long-term housing strategy, the HKSAR Government raised the target for the proportion of public housing in the overall housing supply from 60% to 70% to address strong housing demand, and also updated its target to provide a total of 315,000 public housing units during the ten-year period from 2019-20 to 2028-29. In December 2019, the latter target was scaled down slightly to 301,000 public housing units for the said period. Apart from land and housing, another issue of utmost concern to the community is healthcare. The Government’s HK$200 billion 10-year hospital development plan has already commenced, but filibustering over funding at Legco has led to serious delays of major redevelopment projects. The Macau economy continued to shrink while the gaming industry remained weighed down. However, visitor arrivals recorded a healthy growth during the year, and the revamps and rolling refurbishments of the casino hotels proceeded as planned. The ageing population has led to a shortfall in skilled and unskilled construction workers, and the situation is expected to deteriorate further, potentially raising the risk profile of Hong Kong construction projects through uncertainty around project scheduling and delivery. The tight conditions of the labour market, coupled with high construction materials prices and operating costs, have contributed Hong Kong having the third highest construction costs in the world. In view of the challenges of labour shortage and an ageing workforce, the HKSAR Government allocates HK$200 million in this fiscal year to expand the apprenticeship scheme for the construction industry, and increase the allowances for new trainees to encourage and attract in-service workers to pursue continuing education, while Macau has sought to address the issue by importing labour. As the industry works with the government to attract more talents, SOCAM is also exploring possible alleviation measures of our own by developing our people and grooming young talents. OPERATING PERFORMANCE The Group’s construction business reported a remarkable increase in profit in 2019. Riding on SOCAM’s solid presence in the market, the Group has also expanded its order book notably during the year, and is well set to go from strength to strength. The business posted a profit of HK$393 million for 2019, a 95.5% increase over the profit of HK$201 million for 2018. Turnover for 2019 amounted to HK$4.5 billion, down slightly from HK$4.9 billion for 2018. The lower turnover recorded in 2019 was largely attributable to completion of some major construction projects during 2018, coupled with a relatively low level of HK$2 billion new contracts secured in 2018. Nevertheless, profit margin rose considerably to 8.7% in 2019, from 4.1% in 2018. PROPERTY The Group strove to revamp, re-position and refurbish its retail properties to enhance turnover, footfall and rentals to provide an all-round shopping, dining and entertainment experience. MARKET REVIEW In Mainland China, retail sales of consumer goods went up by 8% year-on-year to RMB41.2 trillion in 2019, while online retail sales reached RMB10.6 trillion after a 16.5% year-on-year growth. Further rapid expansion of e-commerce and the spending habits of the millennial consumers continued to pose challenges to traditional retail environments. New technologies such as big data, artificial intelligence and mobile internet, as well as mature logistics systems, are contributing to better integration of traditional retail stores and online platforms, while operators are also repositioning and revitalising their malls to offer shoppers a lifestyle experience. The Group’s four shopping malls occupy a combined developable GFA of 189,800 square metres. Over these few years, the Group strove to revamp, re-position and refurbish its retail properties to enhance turnover, footfall and rentals and compete in the current market, in which consumers value family-focused outlets that provide an all-round shopping, dining and entertainment experience. OPERATING PERFORMANCE The Group’s property business reported a profit of HK$160 million for 2019, compared with the profit of HK$199 million for 2018. Total turnover for 2019 amounted to HK$1,052 million, comprising sales revenue of HK$869 million, gross leasing income of HK$113 million and Hong Kong property management services income of HK$70 million, as compared with total turnover of HK$1,214 million for 2018. Property Management SOPM has been managing a diversified portfolio of premises in Hong Kong, comprising residential estates, grade-A office building, industrial building, schools, shopping centres, cultural facilities and carparks, with over 25,000 housing flats/commercial and industrial units involving an aggregate GFA of over 500,000 square metres. SOPM contributed stable income and cash flow to the Group during the year. Prospects: The year 2020 will present unprecedented challenges. Following the signing of the phase one trade deal in midJanuary, putting a pause on the US-China trade conflict, the outbreak of the coronavirus in China in January delivers a severe blow to the Mainland economy initially, and then to the global economy after the disease has become a pandemic. The governments of various major countries have launched massive economic stimulus and fiscal aid packages to businesses and households, and the Federal Reserve made emergency rate cuts in March, taking interest rates back to the zero bound, in a concerted move to bolster their economies in the face of a potential worldwide recession. While the Chinese authorities have taken the most rigorous and decisive measures to control the spread of the virus, China’s already weakening economy is set to take another hit, particularly in the first quarter, with temporary city lockdown and production suspension, as well as a dent on retail, catering, tourism, hotels and transport, among others. There is no clarity over the possible impact of the epidemic on China’s economy at this stage, depending mainly on its severity and duration. Despite the coronavirus outbreak, the fundamentals sustaining continued growth of China’s economy have not changed. The domestic economy is expected to remain solid. While the global economic uncertainty will exert further downward pressure on Chinese exports, the pent-up demand post-epidemic and policy support, if needed, will boost private consumption and government expenditures. For the property sector, changes in consumer behaviour, technological advances and further amalgamation of online and offline set to alter the retail market landscape. Hong Kong economy will face mounting risks and challenges in 2020, after having been staggered by the local social turbulence and US-Mainland trade conflict. Now, the coronavirus outbreak further dampened the local consumption and business sentiments and aggravated the current recession of the city. As antipathy towards the HKSAR Government remains high, the deep-rooted conflicts in the society are unlikely to be resolved and public confidence re-built in the short term. Hong Kong will still be under a difficult situation for an extended period. The political wrangling in Legco over funding, causing unpredictable workload peaks and troughs for government projects, will continue. The Group remains extremely cautious on the short-term economic outlook of Hong Kong. Looking forward, we foresee a contraction in the private sector construction projects in the next few years, while more contracts will come from the public sector to address the housing and healthcare needs and provide stimulus to shore up the economy. Unemployment rate is set to upsurge progressively, easing the shortage of construction labour. The global economic uncertainty tends to pull down building material prices. All these set the scene for more severe market competition for the public sector construction contracts. As we pursue our plan to deliver greater value for our shareholders, we will continue to seek to grow those business areas where we are strongest. The Group believes that the construction industry will usher in a tide of opportunities in the coming few years. We will further sharpen our competitive edges, notably design-and-build capabilities, to put us in a better position to respond to the new trends and harness these opportunities ahead. Moreover, as we maintain and navigate close relationship with business partners, the increasing collaboration among the Group’s building, maintenance and fitting out teams, leveraging one another’s strengths, and extensive adoption of innovative new technologies in design and construction processes will give the Group the edge over the competition. To cope with the increasing workload, SOCAM is committed to expanding its construction workforce. We shall attract more new and young entrants, strengthen training and investment in nurturing talents, which will also facilitate succession planning over the longer term. With a leaner property portfolio, the Group will continue to improve rental performance and efficiency to generate higher returns. While SOCAM sharpens its focus on the booming public construction sector in Hong Kong, we will adopt a prudent strategy, and remain alert to acquisition and disposal opportunities to create value for shareholders.

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Public company info - SOCAM Development Ltd. , 00983.HK