chun wo profits increase to HK$59.9 million

Analysis, Slider 01 Dec 2014
chun wo profits increase to HK$59.9 million


28 November 2014.


During the review period, the management has maintained its objective of leveraging opportunities created by infrastructure and urban development in Hong Kong.  As at the review period, the construction operation recorded revenue of approximately HK$3.74 billion, representing year-on-year growth of 38% despite a slowdown in the tendering of government projects. Segmental profit rose by 79% over the last corresponding period, amounting to approximately HK$59.9 million in the review period. Chun Wo has also sought to capitalise on its wide-ranging capabilities, submitting tenders for large-scale infrastructure projects, including tunnelling projects that are not only able to have higher profit margins but also further showcase the Group’s extensive expertise.

As at 30 September 2014, the total value of construction contracts was estimated at approximately HK$30.02 billion, representing the Group’s new record high, in which approximately HK$15.33 billion remains outstanding. In the review period, seven new projects were won, equivalent to a total contract sum of approximately HK$2.22 billion, among which include a joint-venture contract for building the boundary crossing facilities, passenger clearance building and the public transport facilities for the Hong Kong-Shenzhen-Zhuhai-Macao Bridge in Hong Kong. This joint venture project alone represents a record-high contract sum – valued at approximately HK$8.40 billion of which Chun Wo has a stake, and is emblematic of the confidence that the Group enjoys for undertaking such mammoth infrastructure developments.
Outside of Hong Kong, Chun Wo has continued to strengthen its presence in neighbouring Macau by securing several notable projects, including a contract with the leading gaming and entertainment resort facilities owner and developer, Melco Crown Entertainment Limited for the design, supply and installation work at Tree House and Adventure Gate, in Studio City Macau, Cotai. The Group has also secured a project about Construction Works for New Hangar with the authorities of the Macau International Airport in last financial year. Such opportunities will help further bolster the Group’s reputation in the enclave; opening the door to still more projects in the future.

Property Development

Revenue derived from the property development business amounted to approximately HK$53.2 million in the review period, compared with approximately HK$262.3 million for the corresponding period of 2013. Segmental profit amounted to approximately HK$1.4 million, compared with HK$67.1 million for the same period last year. The declines are indicative of the closing of sales activities among the Group’s properties in Mainland China, whereas properties in Hong Kong are currently at preliminary stages of development. The projects in Hong Kong, which are situated in attractive locations with strong demand from home buyers, are expected to become good revenue streams for the Company upon completion.


In Hong Kong, the luxurious residential development at Kau To Shan, Sha Tin will begin site formation work in 2015 subsequent to approval from relevant authorities. The residential development on Tseng Choi Street, Tuen Mun, has achieved satisfactory progress, with demolition of existing buildings now in progress, and pre-sale activities are expected to commence as early as 2016. And also, the Group has applied for a Compulsory Sales Order for the industrial redevelopment project at Cheung Sha Wan, with a hearing scheduled in the first quarter of 2015.

In Mainland China, the Group has sought to sell the remaining flats of its projects in Shijiazhuang and Shanwei. As at the review period, 81% of units in Tower 8 and 100% of units in Tower 9 of “Arc De Royal” in Shijiazhuang have been sold. In respect of “Le Palais Royal” in Shanwei, 99% of residential units and 98% of shops have been sold as at the review period.

For overseas, construction of the “Reem Diamond”, a low-rise residential development in Abu Dhabi, United Arab Emirates, was completed in April 2014. Thus far, approximately half of the units available have been leased, contributing rental income of approximately HK$5 million during the review period.

Outlook & Prospects

The Hong Kong Government is expected to remain a significant source of construction projects in the coming years, as its Capital Works Reserve Fund is valued at an estimated HK$78.7 billion as at 1 April 2014. Even though the pace of public tenders announced has recently slowed, the construction sector has flourished, and will likely continue to thrive driven by such major developments as the West Kowloon Cultural District, Energizing Kowloon East, Tuen Mun-Chek Lap Kok Link, Tuen Mun Western Bypass, and Central-Kowloon Route.

With regard to public housing projects, the Long-Term Housing Strategy Steering Committee has suggested the provision of 470,000 units within the coming decade. Given that 60% of this figure consists of public residences, there are expected to be more opportunities for Chun Wo to strengthen its presence in this housing segment.

With the construction industry is set to sustained growth, there remain ongoing challenges that are unlikely to dissipate in the immediate future. They include continuously rising operating costs and subcontractor fees, as well as a shortage of skilled labour. Consequently, the Group has been operating an elite training programme aimed at recruiting young talent, while talent retention initiatives have helped retain many of its top veterans and skilled workers.

Another area of concern is the potential delay in the issuance of new contracts by the Hong Kong Government due to conflicts between various political parties. If such delays persist, the Group may encounter a marked slowdown in the construction industry from 2016 onwards.

As for the property development segment, the Group continues to focus on development opportunities within Southern China and Hong Kong. While priority will be given to smaller scale projects that can best optimise Chun Wo’s resources, this does not preclude the possibility of engaging in larger scale projects through joint ventures with potential partners. With its renowned technical expertise and ample construction resources, the Group has been approached by other developers seeking joint-ventures.


Presently, Chun Wo has acquired a new plot of land in Tung Chung, which will add to its Hong Kong land bank. In Mainland China, the Group will continue to explore the possibility of developing Phase 3 of “Arc De Royal” in Shijiazhuang with a suitable partner, or alternatively, disposing of the property in its entirety to generate additional capital.


Projects are widely distributed in Hong Kong, Mainland China, Macau, Vietnam and the United Arab Emirates. Possessing the expertise required for large-scale integrated construction projects, the Group is capable of undertaking a wide range of activities which include civil engineering, building construction, foundation works, tunnel boring machine (“TBM”) technology, fitting out and interior design, electrical and mechanical engineering, track-work engineering and maintenance works.

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Its signature projects included the Central-Wan Chai Bypass, Guangzhou-Shenzhen-Hong Kong Express Rail Link and MTRC projects for the South Island Line and Shatin to Central Link. Chun Wo has also seized opportunities involving property development in the PRC, with presence in Shijiazhuang, Hebei Province; Shanwei, Guangdong Province; Yangzhou, Jiangsu Province and Shenyang, Liaoning Province.


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