Chinlink also builds and operates large-scale logistics parks, trade and wholesale centers, and shopping malls. The Group services an extensive client base through its integrated property, financial services and logistics services businesses, creating a unique “finance-ecosystem@, with operations in Hong Kong, Shaanxi Province and Shenzhen, China.
The Group's profit attributable to shareholders for the year ended 31-03-2019 amounted to HKD 18.89 million. Basic earnings per share was HKD 0.0138. No dividend declared. Turnover amounted to HKD 1.75 billion, an increase of 39.2% over the same period last year, gross profit margin up 0.7% to 12.4%. (Announcement Date: 04 Jul 2019)
Business Review - For the year ended March 31, 2019
International Trading Business
For the Year, the international trading recorded a 39.0% increase in revenue to HK$1,551.0 million, being the largest income generator for the Group. Gross profit was HK$48.8 million, a 38.5% increase from the Previous Year. The gross profit margin was stable at around 3.1%. Major trading products during the Year are those highly popular critical electronic components such as IC and NAND flash memory chips widely used in smartphones, tablets and data storage and servers. Despite the worldwide smartphone market growth began slowing down from early 2018, affecting the overall consumption of flash memory, it was largely offset by the increasing demand from the computer industry as a substitution for the hard drives because of its increasing storage capacity, compact size, speed and power efficiency. The Group maintains its competitive advantage and enjoyed substantial growth in this trading business because of its deep market and product knowledge, and a reliable supply and customer bases.
For the Year, the logistics services segment generated the revenue of HK$0.3 million. This segment is ancillary to the Group’s international trading and financial services businesses. Therefore, it only operated in a minimal scale and does not constitute as a material profit centre.
Financial Guarantee Services Business
The Group generated the revenue of HK$18.9 million during the Year represented a modest increase of 11.3% compared with the Previous Year. The gross profit margin remained high at 97.7% during the Year. The total outstanding guarantee amount was RMB403.5 million as of the end of the Year as compared with RMB322.5 million for the Previous Year. On 17 August 2018, Hanzhong City Investment Holdings Group Limited* (“Hanzhong Investment”), the investment vehicle controlled by People’s Government of Hanzhong Municipality, injected RMB120.0 million to Shaanxi Chinlink Financial Guarantee Limited* (the “Financial Guarantee Company”), (an indirect non-wholly owned subsidiary of the Company), as a result, the Hanzhong Investment holds 35.0% equity interest in the Financial Guarantee Company. During the Year, the Financial Guarantee Company still faced difficulty in further expanding the portfolio as Chinese domestic banks imposed tighter credit policy to SMEs.
Finance Lease Services Business
Finance lease services business recorded a 268.9% increase in revenue to HK$32.6 million, and a gross profit of HK$32.5 million. The significant growth was due to the revenue of finance lease service business in the Previous Year only captured 7 months contribution since the business commenced in September 2017. Total outstanding lease balance as of 31 March 2019 was RMB277.4 million, all are sale and lease back transactions with a diversified industry mix that included natural gas pipelines, power generating equipment, oil exploration and drilling machineries, medical equipment and school facilities, etc., with a tenor of three to five years. Most of the cases are supported by underlined machinery or equipment with sufficient cashflow for the lease payment. Overall portfolio performance is satisfactory with no delinquent record.
Property Investment Business
The property investment business reported a 12.0% rise in revenue to HK$104.0 million and was solely contributed by Daminggong Construction Materials and Furniture Shopping Centre (Dongsanhuan Branch)* (the “Commercial Complex”) located in Xi’an. The average occupancy rate recorded around 97.0% in the Year which showed a slight increase of approximately 1.0% compared with the Previous Year. As a matter of fact, the occupancy throughout the Year has been consistently high due to its established status and successful promotion and sales program jointly organised with the tenants on regular basis.
Financial Advisory Services Business
This is a new business segment for the Group. For the Year, MCM Group generated HK$24.5 million revenue in the form of commission and management fees, which represented an increase of 329.8% over the Previous Year. MCM Group’s core businesses include financial advisory and asset management licensed under types 1, 2, 4 and 9, and regulated by the Securities and Futures Commission of Hong Kong (“SFC”). MCM Group experienced a year of further growth and expansion, establishing its first corporate presence in China, and applying for a private equity licence with aim to start operations in 2019. MCM Group is building a strong brand associated with leading international financial services and innovation across China.
MCM Group closed over US$34.5 million in capital raised for its corporate clients, working with companies across North American and Asia, and sourcing capital in China, Hong Kong, Korea, Mexico and Singapore. It advised corporate clients across various innovative industries, including artificial intelligence, cybersecurity, fintech solutions, healthcare and software business solutions. In addition, it facilitated secondary transactions in many late stage global technology enterprises, an area that it’s growing into 2019, assisting existing shareholders find liquidity through its global network of institutional investors.
An exciting milestone was crossed as MCM Group launched its asset management business through its subsidiary, namely MCM Investment Partners Limited (“MCMIP”) which in turn raised over US$75.0 million in investor assets to deploy across a series of private investments. With this business launched, MCM Group can now provide our international investors golden investment opportunities. MCM Group has established key relationships with distinguished asset management firms such as CMB International Asset Management Limited, allowing MCMIP to establish meaningful dialogues with large pension funds and investors globally that are looking to deploy capital in Asia. We also managed to participate in landmark transactions like the pre-IPO placement of Xiaomi and investments into Da-Jiang Innovations and Grab.
Business Outlook - For the year ended March 31, 2019
In the early part of 2018, the Chinese central government maintained its tight liquidity policy, applied stringent control on capital outflow and overseas investment aiming to rectify the massive drain on foreign exchange as a result of indiscriminate acquisitions of overseas assets in the previous years. However, from the second quarter of 2018, there was notable changes in the government’s monetary policy as witnessed by the cut in the banks’ reserve requirement ratio and lower benchmark interest rate to aim to release additional liquidity to China’s banking system. Moreover, People’s Bank of China also required the financial institutions to use the extra funding to provide loans to the SMEs. These measures are meant to retain the growth momentum of the economy, in response to the threats the Chinese economy is facing – investment slowdown, shrinking exports and declining GDP growth at home and the rising tension between China and the United States over trade and technology issues abroad. Besides, China also introduced fiscal stimulus program like tax cuts to encourage consumer spending and corporate investments. All in all, China is implementing more relaxing financial policies to counter the challenging external environment and declining growth in the local economy. Despite that, China is still cautious about the management of financial risk associated with the high leverage, asset inflation and speculative investment activities like real estates.
On the economic structure, China is undergoing a supply side structure reform with focus on elimination of excess capacity and seeking new imputes for the future economic and social development. Throughout the past 40 years of reform and modernisation, China has enjoyed a year-on-year high GDP growth rate of double digits, which was heavily depended on mass production and exports of low costs, labor intensive, high energy wastes, environment hazard, low value-added manufactured goods. China has come to accept a new normal of a medium growth based on new technology, new industry and new business model, employing green, renewable and recycled energies and resources, and manufacturing activities driven by automation, artificial intelligence and internet-of-things. To achieve such transformation of growth model, China has to strengthen its technological capabilities and places great emphasis on research and development, innovation, talents and entrepreneurship.
In response to the above challenges, risk and opportunity, the Group is adopting new strategies to modify its business positioning for the long-term substantiable growth. Chinlink is to become an integrated financial services and innovative solutions group, serving both the fast growing companies, like the SMEs, and the technology startups. Chinlink is devoted to building an ecosystem to foster the development of innovative business environment and entrepreneurship, and to help upgrade and transformation of the traditional local economies and industries. This is to be accomplished by offering a portfolio of financial services, including alternative finance, investment banking, financial advisory and asset management, and strategic partnerships with the provincial and municipal governments across China, the research and academic resources in China and overseas, and to bring in the Silicon Valley experiences to China through partnering with GSVlabs. GSVlabs is a Silicon Valley-based company in the United States with diversified interests in direct investment, private equity and startup incubation and acceleration. In March 2019, the Group became a strategic investor of GSVlabs, an incubator and accelerator that houses startups, provides acceleration programs and connections with big corporations, universities and investors.
For the financial services in China, Chinlink will focus more on taking advantage of a financial solution platform that is comprised of financial guarantee, finance lease, factoring and supply chain finance. It enables the Group to offer innovative and customised financial products and services to the SMEs in China. This is a key differentiation factor in front of strong competition and changing market condition. Although it is divided into business units according to different types of licences, they share the common credit control and risk management under the same customer management system. Only the business development units are separated by product lines but still under the same senior management team overseeing the entire financial group who has the overall portfolio management and bottom-line responsibility. This organisation structure facilitates the flow of information and sharing of business resources. Moreover, it encourages cross-selling financial products customised to clients’ needs to achieve business synergy amongst the units. In the development of new business, the Group will be more focusing on companies and industries that are relevant to China’s development strategy, including infrastructure, public utilities, advanced manufacturing, healthcare, hospital and medical and consumer products, etc. We have strong confidence on the continuing expansion of the Group’s financial service businesses because of its unique positioning in providing comprehensive and innovative solutions to SMEs’ needs, and China’s emphasis on the importance of SME’s contribution to the new development model of Chinese economy.
On the merchant banking area, MCM Group has diversified its business to lessen any dependency on Chinese capital outflows, responding to the strict capital controls in the country, but also looking to leverage increased global interest into China from other regions, as capital seeks to participate in the country’s growth. We are re-directing some of our international investments back into China, reflecting this new reality. With greater political and economic uncertainty in the United Kingdom and United States, we expect to refocus our time and effort towards building our presence in China. With our application in process for a local private equity licence in China, which would be granted and regulated by the Asset Management Association of China, we will soon have the opportunity to extend our asset raising and management capabilities into RMB, focusing on supporting innovative enterprises across China. Finally, our recently signed partnership with GSVlabs will set the base for our focus on building and supporting the growing ecosystem of innovative startups in China, bringing best practices from Silicon Valley along with capital. We are greatly encouraged by the opportunities that lie by partnering with enterprises, municipal and provincial governments and investors to build platforms that support the innovation ecosystem in China.
Chinlink will continue to enjoy reliable income streams from its investment property portfolio. The Commercial Complex will continue to provide the Group with stable incomes in the years ahead because of established market position and successful operation. We can expect a reasonable year-on-year increase in total income and gross profit in line with the market trend but it would not be very significant. The Group has not decided on the development of the second phrase. One more piece of investment property will commence business and contribution to the Group by the fourth quarter of 2019. It is an office and commercial complex named as Chinlink International Centre (the “CIC”). Situated at the heart of Xi’an Economic and Technological Development Zone (“XET Development Zone”), an important central business district of Xi’an other than Xi’an Hi-Tech Industries Development Zone, there are more and more financial companies as well as large foreign enterprises setting up office in XET Development Zone. CIC enjoys unique location advantage. It is highly accessible to the adjacent People’s Government of Xi’an Municipality, XET Development Zone Management Committee, Xi’an North Railway Station (one of the largest railway stations in China), domestic and international airport and China (Shaanxi) Pilot Free Trade Zone. CIC has a total gross floor area (“GFA”) of approximately 55,000 square metres that comprises of 25-storey high quality office tower with 34,000 square metres, 4-storey commercial complex with 8,000 square metres and car park space of 13,000 square metres. CIC will be available for occupation by the fourth quarter of 2019. Four office floors will be occupied by the Group’s China regional headquarters and its finance services companies including the new private equity company setting up by MCM Group. Rest of the area are opened for lease. In May 2019, WeWork, the world’s leading community, space and service provider, had signed a 10- year lease with CIC to take up GFA of approximately 6,648 square metres. This is the largest and second WeWork location in Xi’an so far aimed to provide Xi’an startups, SMEs and large corporations with collaborative workspace to its international standard. WeWork claims that CIC’s international image, its design uniqueness, high-quality construction and the environmentally friendly and modern facilities all match perfectly with WeWork’s positioning and image. This is a very strong validation of CIC as a quality property of the Group, projecting the Group’s commitment to Xi’an and substantially enhanced the Group’s image.
Since the soft opening of the Daminggong (Hanzhong) Building and Construction Materials Wholesale Centre in the Chinlink•Worldport in Hanzhong in March 2019, the Group is still recruiting new tenants with attractive offers aiming to boost up occupancy in short period of time. On the other hand, the Hanzhong Municipal government has designated Chinlink•Worldport as the location for the city’s Chinese herbal and agriculture exchange (the “Exchange”). Chinlink will provide the land and be responsible for the operation and management of the Exchange while the municipal government will provide with the capital investment. Details of the co-operation terms and business operation model will be finalised by the end of 2019.
The Group’s international trading business has been very successful in the past years, especially in the trading of key electronic components. It is the key growth driver of the Group. Nevertheless, the mounting trade and technology disputes between China and the United States are disrupting the global supply chain, casting uncertainty over major international component manufacturers and their buyers in China. The Group has reservation on the prospect of this trading business and the possible risk involved. We will adopt a cautious approach to this line of business.
Also, this type of trading business is very much relying on the availability of sufficient banking facility. Should the economic situation continue to deteriorate as a result of external factors as mentioned, banks may become conservative in their credit policy which may eventually affect our ability to maintain the trading level as previous.
Innovative Solution Ecosystem
In December 2018, Chinlink was appointed by Shaanxi Provincial Department of Commerce to be the Commerce Representative Office in Hong Kong. This is a recognition of the Group’s past efforts in promoting the business and financial connections between the Shaanxi Province and Hong Kong. For two consecutive years since 2017, the Group initiated two Shaanxi-Hong Kong financial co-operation forums hosted by the Shaanxi Provincial Department of Commerce, and attended by many Hong Kong and international financial heavyweights and personalities as well as Shaanxi banking and financial institutions and corporations. This year, similar type of forum will be held in coming September, but this time it will focus on innovation and technology, startup incubation and venture capital, still to be held by the Shaanxi Provincial Department of Commerce and Chinlink being the co-organiser, together with MCM Group and GSVlabs.
Xi’an, the capital of the Shaanxi Province, is regarded as a special place for its history and culture legacy, its location as the spearhead of the Belt and Road Initiative, and its future as a model city in China – a vibrant city designated as an experimental national reform driven by an innovation-oriented economy. This western Chinese city has traditionally lagged its coastal peers, but it is catching up on the back of its strategic position on the Silk Road and its strengths in innovation, research and development, and vast intellectual capital.
Xi’an is a home to over 60 universities and higher education institutions, many of them enjoyed high global and national ranking. In January 2019, Chinlink entered into a strategic co-operation agreement with the Science Park of the Xi’an Jiaotong University, a top university in Xi’an, to work together in the areas of incubation and acceleration, technology transfer and startup funding.
China is now entering the next stage of economic development building on intellectual capital and innovation, technology readiness, entrepreneurial and startup environment, and international linkage. Integrating a network of international innovation partners, Chinlink is set to build a bottom-up ecosystem to provide innovative solutions for early stage fast growing companies and established businesses in Xi’an and across China by stages. Working closely with municipal governments, Chinlink is ready to help foster the development of innovative business environment and entrepreneurship, and upgrade traditional local economies and industries.
With the support of the Shaanxi Provincial and Xi’an Municipal authorities, and the academic and research resources of Xi’an Jiaotong University Science Park, Chinlink will partner with GSVlabs to set up the first GSVlabs innovation centre in Xi’an to introduce the Silicon Valley acceleration model. This is part of GSVlabs global expansion plan, the Group’s strategic investment in GSVlabs entitled the Group to participate in all GSVlabs’ future China project. MCM Group on the other hand will offer fundraising, venture capital, private equity and corporate finance services to the ecosystem. This will become a strategic business positioning for Chinlink, we envisage to set up other innovative centres across China in the years ahead.
Source: Chinlink Int'l (00997) Annual Results Announcement