Second Quarter Financial Statement And Dividend Announcement 2018
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* Tokumei Kumiai ("TK") refers to a form of silent partnership structure used in Japan. Allocation to TK investors refers to share of profit and loss attributable to other TK investors of the TK structure.
N/M: Not meaningful
Review of Performance
Review of Income Statement
Total income of the Group was $54.6 million for 1H2018, a 14% increase from 1H2017. Changes in major components of total income, including charter income, fee income, hotel income and investment returns are explained below.
(i) Charter Income
Charter income increased by 9% from $18.0 million in 1H2017 to $19.7 million in 1H2018. Besides better spot charter rates for the Group’s portfolio of ships under short term charter, one main factor is the inclusion of charter income of the vessel under Fulgida Bulkship S.A. (“Fulgida”) in 1H2018, but not in 1H2017. This is because Fulgida acquired its vessel on 2 November 2017.
(ii) Fee Income
Total fee income, at $4.0 million for 1H2018, remained at fairly the same level compared to $3.9 million for 1H2017, notwithstanding that arrangement and agency fee for 2Q2018 was less than that of 2Q2017 by 70% due to less arrangement deal transactions in 2Q2018.
(iii) Hotel Income
Hotel income increased by 33% from $21.0 million in 1H2017 to $28.0 million in 1H2018 due to more rooms under operations in 1H2018 and better performance of the hotel portfolio.
(iv) Investment Returns
Investment returns for 1H2018 was $1.5 million compared to $4.4 million in 1H2017. Fair value gain of $3.1 million was made for the Group’s second Hong Kong commercial office property investment in 2Q2018, while additional fair value loss of $1.3 million was recognised for the product tanker investment in 2Q2018.
Total Operating Expenses
The Group’s total operating expenses increased by 13% from $39.8 million in 1H2017 to $45.0 million in 1H2018. Employee benefits expenses, hotel lease expenses and hotel operating expenses increased in correspond with the increase in hotel income. Depreciation and vessel operating expenses increased due mainly to the aforementioned vessel acquired in November 2017.
The Group made a reversal of impairment of property, plant and equipment totalling $3.1 million in 1H2018 following the disposal of a hotel as well as a contracted sale of a ship, both of which were impaired in previous years.
Operating profit of the Group was $9.7 million for 1H2018, an increase of 16% compared to 1H2017.
Net Profit After Tax
The Group posted a net profit after tax of $6.3 million for 1H2018, as compared to $5.5 million for 1H2017.
According to Clarksons Research “Dry Bulk Trade Outlook” June 2018 issue, global seaborne dry bulk trade is projected to grow by 2.7% to reach 5.2 billion tonnes in 2018 and by 3.4% in terms of tonnemiles. Although uncertainties remain over the impact of implemented and potential tariffs on trade between US and its major trading partners, the volume of dry bulk trade that could be affected may not be significant. Meanwhile on the supply side, the bulk carrier fleet is projected to expand at relatively subdued rate of 2.5% in both 2018 and 2019. Overall, there is potential for further gradual improvement in the drybulk sector as growth in seaborne dry bulk trade could outpace fleet growth in 2018.
Hong Kong Property
In Hong Kong, the Group’s 2nd property investment project at 650 Cheung Sha Wan Road received the Certificate of Completion on 28 June 2018. Hong Kong’s overall economy and labour market remains strong in supporting the leasing demand for office. As the demand for commercial office space in Hong Kong continues to grow, the Group is exploring a fifth project so as to capitalise on this growth.
Japan’s property market remains buoyant. While expanding new ALERO projects opportunities, the Group is also exploring new asset/construction management opportunities including hotel redevelopment projects
For 2017’s Hotel Chain Ranking organised by “Jalan.net”, one of the largest online hotels and ryokans booking site in Japan, the Group’s Hotel Vista was voted first for 2 categories:
- “Business Travel – Less Than JPY15,000 Per Night” Category
- “Family Travel – Less Than JPY15,000 Per Night” Category
With the Group’s existing portfolio of hotels and new hotels to be added to the Group’s portfolio, and the endorsement by guests as top in its category, the Group is in a good position to benefit from the growing hospitality market in Japan.