Third 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 $86.0 million for 9M2018, a 17% increase from 9M2017. 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 7% from $27.5 million in 9M2017 to $29.4 million in 9M2018 mainly due to the inclusion of charter income of the vessel under Fulgida Bulkship S.A. (“Fulgida”) in 9M2018, but not in 9M2017. This is because Fulgida acquired its vessel on 2 November 2017.
(ii) Fee Income
Total fee income increased by 20% to $5.7 million in 9M2018 from $4.7 million in 9M2017. All fee income sub-categories for 9M2018 increased as compared to the same period last year.
(iii) Hotel Income
Hotel income increased by 40% from $34.5 million in 9M2017 to $48.2 million in 9M2018 due to more rooms under operations in 9M2018. The growth was in line with the Group’s strategy to expand its hotel operation business. Five new hotels were added to the Group’s portfolio in 2018 and the number of rooms under operations had increased from 1,851 as at end of 2017 to 2,667 as of end of September 2018.
(iv) Investment Returns
Investment returns for 9M2018 was $0.8 million in 9M2018 compared to $5.4 million in 9M2017. $1.2 million in cash was recovered from distressed assets. Additional fair value loss of $3.5 million was recognised for the containership investments in 3Q2018 following the deteriorations of containership investments as a result of ongoing trade war.
Total Operating Expenses
The Group’s total operating expenses increased by 18% from $62.7 million in 9M2017 to $74.2 million in 9M2018. Employee benefits expenses, hotel lease expenses and hotel operating expenses increased in correspond with the increase in hotel income. In particular, pre-opening expenses totalling US$1.1 million for the 5 new hotels added to the Group’s hotel portfolio in 9M2018 contributed to the increase in hotel operating expenses. 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 9M2018 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 $11.8 million for 9M2018, an increase of 9% compared to 9M2017.
Net Profit After Tax
The Group posted a net profit after tax of $6.2 million for 9M2018, as compared to $5.7 million for 9M2017.
According to Clarksons Research “Dry Bulk Trade Outlook” September 2018 issue, 2018 has so far seen the balance of fundamentals improve in the bulker sector due to limited fleet growth although going forward, there are a number of risks to the demand outlook including the potential for Chinese major bulk imports to soften. Overall, the fundamentals in the bulkcarrier market initially look set to be broadly balanced in the coming year. The Group monitors the bulkcarrier market carefully and makes adjustments to the Group’s bulkcarrier strategy accordingly.
According to Howe Robinson Partners Third Quarter Containership Review 2018, the combined impact of tariff, Brexit, financial instability, weaker German growth may result in a highly uncertain containership demand, while the legacy of oversupply from 2018 could weigh on the containership freight, charter and secondhand markets in the coming year. The 4 containerships in the Group shipping portfolio may be impacted under such market conditions.
Hong Kong Property
In Hong Kong, the high-speed rail link between Hong Kong and mainland China opened to the public on 23 September 2018. The Hong Kong-Zhuhai-Macau bridge linking up Hong Kong, Macau and the mainland’s River Delta cities to form the Greater Bay Area was declared officially open on 23 October 2018 by Chinese President Mr. Xi Jinping. Hong Kong’s economy is expected to be more robust with the opening of these infrastructures. Following the success of the Group’s 2nd property investment project at 650 Cheung Sha Wan Road, the Group has invested in the fifth property investment project and is now exploring a sixth property investment project. The aim is to capitalise on Hong Kong’s commercial property growth and for such projects to add on to the Group’s bottomline annually.
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.