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Review Of Performance
2Q 2017 vs. 2Q 2016
In-line with the Group's delivery schedule, GFA delivered to customers declined by 50.9%. In tandem with the decline, revenue of the Group reported a decrease of 42.2% or RMB3.126 billion to RMB4.277 billion in 2Q 2017 as compared to RMB7.404 billion in 2Q 2016, partly offset by the increase in revenue from sales of car parks in 2Q 2017 over the same period last year. In 2Q 2017, over 60% of the Group's gross revenue from sales of properties was contributed by Suzhou, where 45.9% and 16.2% derived from the existing project in Tang Yue Bay Gardens (棠悦湾花园) as well as inaugural delivery in Yanlord Lakeview Bay – Land Parcel A1 (仁恒双湖湾 A1 地块) respectively. Other main contribution included Yanlord Western Gardens (仁恒西郊雅苑) in Shanghai, which accounted for 10.9% of the Group's gross revenue from sales of properties in 2Q 2017.
Despite the lower revenue reported, gross profit rose 21.3% or RMB319 million to RMB1.817 billion in 2Q 2017 as compared to RMB1.498 billion in 2Q 2016. The improved gross profit was mainly due to the change in product mix composition to include a large percentage of higher-profit-margin projects as well as the increase in revenue from sales of car parks in current reporting period over the same period last year. Hence, gross profit margin in 2Q 2017 grew 22.3 percentage points to 42.5% in 2Q 2017 from 20.2% in 2Q 2016.
In-line with the increase in gross profit and gross profit margin reported in 2Q 2017, profit before income tax increased by 25.9% or RMB314 million to RMB1.530 billion in 2Q 2017 from RMB1.216 billion in 2Q 2016, while profit before income tax margin grew by 19.4 percentage points to 35.8% in 2Q 2017 from 16.4% in 2Q 2016.
Consequently, the Group's profit for the period increased to RMB648 million in 2Q 2017 from RMB500 million in 2Q 2016, which represented an increase of 29.4% or RMB147 million. And, profit for the period margin reported a growth of 8.3 percentage points to 15.1% in 2Q 2017 as compared with 6.8% in 2Q 2016.
1H 2017 vs. 1H 2016
Despite the Group recording a lower GFA delivered to customers in-line with its delivery schedule for 1H 2017, revenue of the Group increased 3.3% or RMB341 million to RMB10.598 billion in 1H 2017 as compared to RMB10.257 billion in 1H 2016 primarily attributable to higher revenue from sales of car parks in 1H 2017 over the same period in 2016. Revenue in 1H 2017 was mainly generated from projects in various cities of the People's Republic of China ("PRC") namely, Yanlord Yangtze Riverbay Town (Phase 4) (仁恒江湾城四期) in Nanjing, Yanlord Western Gardens (仁恒西郊雅苑) in Shanghai, Tang Yue Bay Gardens (棠悦湾花园) in Suzhou and Yanlord Marina Centre – Section B (仁恒滨海中心 – B 标段) in Zhuhai, which represented 27.9%, 19.9%, 18.8% and 9.8% of the Group's gross revenue on sales of properties in 1H 2017.
Gross profit reported a commendable increase of 113.6% or RMB2.628 billion to RMB4.943 billion in 1H 2017 as compared to RMB2.315 billion in 1H 2016 primarily due to the change in composition of product mix of the residential properties delivered to include a larger percentage of higher-gross-profit margin projects in 1H 2017 as compared to 1H 2016. Hence, gross profit margin surged 24.0 percentage points to 46.6% in 1H 2017 from 22.6% in 1H 2016.
As such, profit before income tax grew considerably by 140.5% or RMB2.638 billion to RMB4.515 billion in 1H 2017 from RMB1.878 billion in 1H 2016, and profit before income tax margin increased by 24.3 percentage points to 42.6% in 1H 2017 from 18.3% in 1H 2016.
Profit for the period also reported a significant growth of 135.0% or RMB1.215 billion to RMB2.116 billion in 1H 2017 as compared to RMB900 million in 1H 2016, while profit for the period margin reported a considerable increase of 11.2 percentage points to 20.0% in 1H 2017 from 8.8% in 1H 2016.
STATEMENTS OF FINANCIAL POSITION
Available-for-sale investment of RMB6 million represented investment in Wuhan Metropolis Project (武汉大都会项目).
Senior notes of RMB3.015 billion as at 30 June 2017 represented US$450 million senior notes due in January 2022 issued by the Group in January 2017.
Other payables, which mainly included advances received from customers, increased by 2.4% or RMB578 million to RMB24.667 billion as at 30 June 2017 from RMB24.089 billion as at 31 December 2016 mainly due to an increase in pre-sales proceeds received from customers.
STATEMENTS OF CASH FLOWS
Net cash (used in) from operating activities
The Group recorded net cash used in operating activities of RMB3.142 billion in 2Q 2017 and RMB10.080 billion in 1H 2017 as compared to net cash from operating activities of RMB199 million in 2Q 2016 and RMB2.435 billion in 1H 2016 respectively. The net cash outflows in current reporting periods were mainly due to increase in landbank and resettlement payments partly offset by an increase in advances received from customers in 2Q 2017 and profit for the period in 1H 2017 respectively over the same periods last year. In 1Q 2017, the Group made a landbank payment for Nanjing No. 2016G84 Land (南京 No. 2016G84 地块), while in 2Q 2017 the Group incurred resettlement payment for an old district redevelopment project namely, Shanghai Yangpu District 81 and 83 Redevelopment Project (上海杨浦区 81、83 街坊旧区改造项目).
Net drawdown from bank and other borrowings
Net drawdown from bank and other borrowings increased to RMB9.541 billion in 2Q 2017 from RMB6.153 billion in 2Q 2016 and to RMB11.018 billion in 1H 2017 from RMB4.087 billion in 1H 2016, in-line with the Group's funding requirements for project investments and developments in current reporting periods as well as redemption of senior notes due in May 2017.
The PRC real estate sector grew steadily in 1H 2017 with total investment in real estate in 1H 2017 rising 8.5% to RMB5.061 trillion based on data compiled by the National Bureau of Statistics ("NBS") on 17 July 2017. Buoyed by demand for residential properties, prices for primary commodity housing within the top 70 cities rose approximately 9.4% in 1H 2017 based on the data released by NBS on 18 July 2017. First and second tier cities such as Shanghai, Nanjing and Tianjin posted steady gains in property prices rising 8.6%,13.0% and 12.3% respectively compared to prices a year earlier based on the data released by NBS on 18 July 2017.
The Group continues to witness steadfast buyer demand for its high-quality residential developments. As at 30 June 2017, the Group has received advances for pre-sale properties (recorded as “Other payables” in the statements of financial position), amounting to RMB23.217 billion, with an accumulated pre-sale amount of RMB27.849 billion.
The Group will continue to deliver projects in accordance with its delivery schedule. This would include launching a new project and new batch of existing project in 3Q 2017 namely, Oasis New Island Gardens (Phase 3) (绿洲新岛花园三期) in Nanjing and Yanlord on the Park (仁恒世纪公寓) in Shanghai.
Volatilities in the global financial markets coupled with policy headwinds arising from austerity measures introduced by the PRC central government may serve to slow the rapid growth of new land tender prices and help to maintain a stable and sustainable development of the property sector over the longer term. Capitalising on the stable economic development of the PRC, which saw GDP rising 6.9% in 1H 2017 based on the data released by NBS on 18 July 2017, Yanlord, with its high quality landbank and strong brand recognition, is well poised to tap the rising demand for quality residential developments in the PRC.
Barring any further significant deterioration in the global economy and any other unforeseen circumstances, the Board of Directors is confident of the Group's performance relative to the industry trend for the next reporting period and the next 12 months based on the number of pre-sale units to-date, expected delivery schedules and on-schedule construction works in progress.