 Sino's Comments: Re: Canada Land Ltd ("CDL"): 31 March 1998 Full Year Results Please find attached CDL’s financial results for the 12 month period ended 31 March, 1998, for your reference. The Company reported a net profit after tax of A$690,000, which was significantly below our own forecast. It has also elected not to declare a final dividend. The second half of the 1997/98 financial year was essentially a break-even situation for the Company as it made an after tax profit of only A$18,000. The disappointing results were the result of two main factors: 1. Wong Tai Seen (WTS). There was no contribution to the Company’s earnings from the WTS project prior to 31 March, 1998. However, we believe that the Company is close to having securing all the necessary approvals to enable it to officially commence the sale of the ancestral memorial plates. With some 80,000 plates to be sold at approximately A$850 each over the next several years, the Company is on the verge of starting to realize a long-awaited return from this highly profitable project. Meanwhile, construction of the temple is proceeding smoothly with completion scheduled for early-1999. 2. Canview Building. While all the commercial floor space within the building has been sold, the sale of residential apartments has slowed, reflecting the current difficult operating environment for property developers in Hong Kong and, to a lesser degree, in Guangzhou. Guangzhou’s property market has traditionally attracted a significant number of Hong Kong investors who in recent months would have found it difficult to invest anywhere if at all. Approximately 60 per cent of the 344 residential apartments have been sold. The building will be turnkeyed in July, 1998. In the short to medium term, we have downgraded our recommendation on CDL to a HOLD. We will reinstate our BUY recommendation once we have evidence of the success of the first marketing campaign of the ancestral memorial plates, and when sales of the residential apartments in the Canview Building resume in earnest. On a longer term basis, we remain positive on CDL. The Company has a strong balance sheet with A$2.2 million cash and only A$785,000 in debt. While we are yet to finalize our earnings forecasts for the current 1998/99 financial year, we expect the WTS project to start making a significant contribution to the bottom line this year and, accordingly, we believe that earnings are likely to continue to recover. It should also be noted that the Company has yet to really tackle its ‘jewel in the crown’, the Metro Station West project which, compared with the 28,000 square metres of floor space within the Canview Building, will have an estimated floor space of 346,000 square metres. ASX Announcement: CDL:Preliminary Final Report REVIEW OF OPERATING RESULTS During the financial period under review, the Group's profit after taxation amounted to A$690,000 (HK$3,536,000), representing a reduction in profitability compared to the profit of A$873,000 (HK$5,299,000) reported in the previous year. The year proved unexpectedly difficult, particularly in the second half when a number of financial and property markets in South East Asia suddenly appeared vulnerable to both internal and external pressures. China was far less affected than others by these events, but to government remained alert as to the possible impact of currency devaluation and the slowing of exports as products became cheaper to produce elsewhere. My view at to present time is that the determination of the government to avoid devaluation is the correct course to follow and that it will indeed be followed. The continued growth of the property market in China in the first half of our financial year led to steady sales of residential units in the Company's Canview project. After caution on the part of Hong Kong buyers has been obvious during the past few months I can report that some 40% of the project has now been sold following the sale of all commercial and some parking space in the building. I now expect that all remaining residential units will have been sold before the end of the current financial year. Canview Building will be turnkeyed in July 1998. Wong Tai Seen temple is the only such temple being constructed by a joint venture company in Guangzhou, China since 1949 and we are thus in a unique position. This approval, received after some unforeseen delays, means that the temple may be used for religious purposes and members of the public may purchase memorial plates in honour of their ancestors and worship at the temple. This is extremely important in the Chinese culture as visitors to the Wong Tai Seen and other temples in Hong Kong are well aware. As in the previous year your Company disposed of an investment property in Hong Kong during the financial year, taking advantage of the dramatic improvement in the local market before a downturn was again experienced. As I predicted in the previous Annual Report any concerns about the handover of the territory to China have disappeared and, although it is somewhat a cliche, business has remained "as usual" in Hong Kong as a Special Administrative Region of China. PROSPECTS HOUSING IN CHINA With the Chinese Government's continuing relaxation in its credit policy and low interest rates, we expect the property market in Guangzhou as well as elsewhere in China to regain its momentum. The mortgage market is being strongly encouraged by the Central Bank and mortgages up to 70% of the purchase price of a property are now available in China for both the primary and the secondary markets. During April and May China's recently appointed Premier, Zhu Rongji, announced dramatic reforms of the country's housing policy. One of the most notable is the announcement that, effective July 1, 1998, state owned enterprises would no longer be permitted to provide housing for employees. Instead, companies will be permitted to provide cash payments to their staff to help them purchase homes on the open market. This will help absorb to surplus housing which exists in some areas and made a further boost to developers. This policy has already taken effect in some cities, including Guangzhou where Canada Land has its core activities. Also, the secondary market for housing will be further developed so that people can trade their homes and thus relocate to new job opportunities more easily than in the past. Loans for property developers will be eased with banks providing 50% of the cost of a project for terms up to five years. Finally, the legal system will be modified so that current laws restricting the "usage" period of housing to 70 years will disappear to be replaced by lifetime ownership. My belief is that these reforms will not only help the property development business. They should also boost other areas of the economy as industries dependent on housing construction, such as cement and plate glass, increase their production rates. It has been suggested that the reforms may contribute a further 0.65% to GDP growth in 1998, and that the surplus of housing which exists in certain areas will be absorbed during 1998 and the industry should enjoy rapid growth in 1999 and beyond. CANADA LAND PROJECTS The Canada Land Group has a total of five projects in the PRC, either completed or in progress, namely Regent House, Yi Fang Estate, Canview Building, Wong Tai Seen and FangCun Metro Station West. All of these projects are situated within the transportation hub of Guangzhou, the last four projects in particular being close to the subway line opened in June 1997 linking FangCun and the southern districts of the city to the heart of Guangzhou. The subway one, totalling sixteen stations, is being extended and is scheduled to open to the public in early 1999. This first line will link FangCun across Guangzhou to to recently opened main railway station in to north east of to city. The experience of Hong Kong and other major cities in the world has shown that the completion of such vital transportation links is quickly followed by an increase in the value of property located adjacent to transportation. Regent House and Yi Fang Estate were completed and fully sold with a high level of profitability. Shareholders are of course aware that the recent temporary slow down in to China property market and delays in obtaining all clearances to proceed with the Wong Tai Seen project have led to a disappointing, although still profitable, result for the Company in the current financial year. However, in the year to 31st March, 1999, both the Canview Building and Wong Tai Seen Temple are expected to make a significant contribution to our earnings. Already some 500 plates in the Temple have been ordered and close to HK$1 million (A$195,000) has been deposited in a trust account for these purchases. As Wong Tai Seen will be a landmark development it is likely to attract premium prices for few plates. Tourists will also generate significant business for shops and restaurants renting space from to Company in to grounds of the Temple and I am confident that Wong Tai Seen will become a major tourist attraction in the City of Guangzhou and will contribute strong cash flows and recurring income to the Company. The Group continues to own a significant land bank in China at an acquisition cost substantially below current market value. This assures the Company's future profitability as China becomes one of to leading economies of the world and this status reflected in the continued growth of its property market. Although the Company has again been profitable this year the Directors feel it would be prudent to refrain from paying a final dividend. The Board retains its confidence in the China market as expressed before, but in these somewhat uncertain times it is agreed that preserving the liquidity of the Company is paramount. I again take this opportunity to thank my fellow Directors for their support and our staff for their dedicated service. They have all contributed to the success of the Group through the difficult year we have experienced and I am sure will continue to serve us in the year ahead.
W S L Yip
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