Chairman Statement

Dear Shareholders,

On behalf of the Board, I am pleased to present Ying Li International Real Estate Limited's ("Ying Li" and together with its subsidiaries, the "Group") annual report for the financial year ended 31 December 2016 ("FY2016").

2016 Macro Perspectives

2016 proved to be a tumultuous year as corporates faced a series of uncertainties both within and outside of the People's Republic of China ("PRC") throughout the year. On the external front, the world economy was beset by subdued recovery which impeded foreign investments into PRC. Internally, the PRC government had to forge ahead with supply-side structural reforms as its key strategy to mitigate the country's economic slowdown brought upon by the downward pressure of the global economy. With the reforms beginning to gradually present its effect, coupled with the rebound in the overall demand for infrastructure, housing and automobile in PRC, the economy ended on a sound note for the year. For 2016, the economy in PRC grew steady with an annual gross domestic product ("GDP") growth of 6.7% year-on-year ("Y-o-Y") to RMB74.4 trillion, crossing the RMB70 trillion mark for the first time and leading the world with the highest economic growth1.

On the sector front, property destocking was prioritised as one of the key economic targets for 2016 at the annual Central Economic Work Conference in 2016. This had led the fragmented property sector to experience a diverging policy trend during the year. In the first half of the year, policies were loosened to stimulate demand such as relaxing purchase criteria, reducing down-payment requirement and tax payable in various oversupplied Tier 2 and 3 cities. In contrast, in the second half of the year, soaring property prices in bigger cities such as Beijing, Shanghai, Shenzhen, Nanjing and Hefei prompted the government to introduce cooling measures in a bid to cool the respective overheated markets in the fourth quarter.

Due to the uneven development of the property sector across the cities, property prices have skyrocketed in Tier 1 and bigger Tier 2 cities such as Beijing and Nanjing, while Tier 3 and 4 cities are still grappling with high inventory levels and depressed prices. This prompted the central and provincial governments to introduce city-specific policies to alleviate the situation. As such, restrictions were imposed only in the overheated markets to keep speculation at bay. Overall, positive progress was made on destocking as the nation's total area of commercial housing available for sale dropped 3.2% Y-o-Y to 695.39 million square meters ("sqm") in 2016. In addition, real estate activity for the year had also expanded, evidenced by the improvements of its various indicators such as real estate development investment, total construction area, new construction area, total sales transaction, total area transacted and capital injection from property developers.

As the economic and financial centre of western PRC and pillar of the development for the Western region, Chongqing's economy has exhibited steady growth over the years along with improvements in its social development. For 2016, Chongqing's GDP grew by 10.7% Y-o-Y to RMB 1.76 trillion, outpacing the country's GDP growth rate by 4 percentage points. Maintaining a double-digit growth for four consecutive years, Chongqing is the fastest growing city in PRC for 2016. Moreover, investments in infrastructure and urbanisation rate have been progressing on a stable growth trajectory while disposable income per capita has also been growing apace during the year. These signal the continuing huge prospects for growth and development in Chongqing.

In comparison with the nationwide property market, Chongqing's property sector has been progressing on a relatively healthy and stable course, devoid of any extreme price surges. Coupled with the stable growth momentum of Chongqing's economy and rising disposable income, inventory levels had moderated to a certain extent with the active destocking exercise in 2016. For 2016, the total area sold for commercial housing increased by 16.3%, of which total area sold for residential property increased by 14.0%. Accordingly, total transacted amount for commercial housing increased by 16.3%, of which total transacted amount for residential housing increased by 17.4%. Although Chongqing is still facing a short-term oversupply situation, these encouraging indicators demonstrate a relatively stable demand for residential property and investor's confidence in the city.

FY2016 Performance

As a property developer engaged in both commercial and residential developments, 2016 was an eventful year fraught with both opportunities and challenges for the Group. Charting through choppy waters, Ying Li delivered an improved financial performance for FY2016, notably with the following:

  • Unprecedented record revenue for the full year;
  • Revenue from Sale of Properties leaped by 117.4% Y-o-Y to RMB867.6 million;
  • Finance costs decreased by 9.1% Y-o-Y to RMB93.0 million due to a successful reduction in borrowing costs;
  • Profit (excluding fair value gain and its associated deferred tax expenses) increased by 465.4% Y-o-Y to RMB57.6 million

During the year, the Group actively pursued various means to broaden its financing channels and lower borrowing costs. Particularly, the Group successfully issued a US$50 million floating rate notes to its strategic shareholder, China Everbright Limited ("CEL"), and Shanghai Pudong Development Bank in April 2016. Prior to the issuance, a memorandum of understanding was signed between the related parties at the inaugural high-level Joint Implementation Committee meeting in Chongqing for the China-Singapore (Chongqing) Demonstration Initiative on Strategic Connectivity ("CCI") on 8 January 2016. Notably, this issuance is the first of such to crystallise from the CCI. In addition, the Group has refinanced some of its existing loans, effectively lowering its average interest rates to 6.91% as at 31 December 2016 versus 7.65% as at 31 December 2015.

In view of the complexities of the macro and micro environment, Ying Li implemented several key strategies in adapting to market volatility, to better capture opportunities and respond to risks and challenges during the year.

Strategies to Capture Opportunities and Overcome Challenges

The Group's improved financial performance for FY2016 could not be realised without strategies to overcome the headwinds. In view of the complexities of the macro and micro environment, Ying Li implemented several key strategies in adapting to market volatility, to better capture opportunities and respond to risks and challenges during the year.

Firstly, the Group had adjusted its business strategy to mitigate the challenge arises from the existing shortterm oversupply situation in the property market. Building on our core competencies of developing high quality projects, the Group sought to increase the variety of its product offerings to reduce the overall risks assumed. To that end, we introduced projects that cater for hard core demand with shorter development cycles and relatively faster cash flow generation, such as Lion City Garden and Ying Li International Hardware and Electrical Centre ("IEC"), apart from our traditional niche premium commercial property projects. Coupled with the analysis of market needs, we established a bespoke segment with the IEC project where project specifications are tailored according to customer's requirements, which is a step further in mitigating our risk. This well-balanced portfolio catering to the needs of various customer segments allows the Group to steer away from the oversupply situation in any particular segment. To further mitigate potential risks associated with a specific region, the Group has ventured outside of Chongqing with an investment in Beijing as we continue to gradually expand in PRC, particularly in Tier 1 and fast growing Tier 2 cities.

Secondly, the Group's partnership with its strategic shareholder, CEL, was further strengthened when CEL increased its shareholdings in the Group through the acquisition of an additional 8.02% stake in Ying Li in December 2016, bringing its total equity interest to 22.92%. This is a vote of confidence towards the Group's business prospect and gradual strategic transformation in scale and scope from a local commercial-centric property developer in Chongqing to a property developer with diversified product offerings including residential, commercial and bespoke properties, as well as a geographical focus on selective promising cities in PRC. In addition to complementing Ying Li's existing capabilities, the strengthened partnership will assist the Group in the areas of widening funding avenue and talent acquisition, among others. Exemplifying CEL's support to boost the Group's existing talent pool, CEL has introduced individuals with experience and competency in real estate and asset management, valuable in driving the Group to new heights.

Thirdly, to enhance the quality of our project offerings, the Group has been diligently focusing on optimising its management model with an aim to reduce overall costs and enhance efficiency while raising quality control standards for its projects. These are done to ensure our product offerings can meet or even exceed customer requirements.

Last, but not least, the proliferation of e-commerce continues to impact the retail climate in PRC adversely, presenting significant challenges to our three retail malls in Chongqing. In addressing this online threat, the Group has enlisted the support of CEL for the management of its two IMIX Park retail malls to tap on their expertise in mall management. Apart from the continual tenant-mix adjustments, our IMIX Park malls are undergoing repositioning to differentiate from other malls. With an emphasis on in-store experiences, lifestyle, family/children and entertainment themes which online retail could not emulate, the Group hopes to further augment its occupancy rates and recurring income base for the retail malls.

Projects Under-development on Schedule while Pre-sales were Strong

Currently, Ying Li is dedicating efforts in building three integrated projects, namely Lion City Garden, IEC, and Ying Li International Commercial Centre ("ICC"). These ongoing developments progressed smoothly during the year and are on track for their completion/handover within their respective stipulated periods. As planned, we completed and commenced the handover of IEC Phase 1A in December 2016. The handover of the high-rise towers for the Lion City Garden project had also commenced in the third quarter of 2016. As at 31 December 2016, the total sales and contracted pre-sales of IEC's Phase 1A and 2A amounted to RMB946.0 million, while the same for Lion City Garden, which includes Phase 2A, 2B and 2C, amounted to RMB809.0 million.

Over at Beijing Tongzhou where our investment project, New Everbright Centre (formerly known as Future Beijing) resides, pre-sales for SOHO Tower 2 and 3 remained robust with 96.0% and 30.0% pre-sold respectively as at 31 December 2016. Total contracted pre-sales for the project (including Tower 1 which was fully pre-sold) amounted to RMB3.4 billion as at 31 December 2016 while the average selling price for Tower 3 reached RMB44,300 per sqm as at 31 December 2016.

Outlook For 2017

The economic condition in 2017 is expected to remain challenging as the uncertainty of the global economy continues to loom. On an optimistic note, PRC's economic outlook could potentially brighten on the back of steady domestic demand and supportive monetary policies. As we usher in the new year, the development of Chongqing remains buoyant as demonstrated by the city's steady economic growth and consistent GDP growth ahead of other cities. Coincidentally, Chongqing marks the 20th year of municipality in 2017. With the introduction of a series of favourable and monumental initiatives such as One Belt One Road, Chongqing- Xinjiang-Europe International Railway, cross-border bonded zone, and approval to set up a free-trade zone, Chongqing has cemented its position as the cornerstone of the development in western PRC with its favourable geographical location. In particular, the establishment of the free trade zone will greatly enhance the development of Chongqing in appealing to more international organisations, including Fortune 500 companies to venture into Chongqing.

In a nod to Chongqing's economic prospects, bilateral cooperation has deepened from the CCI in the past year, notably with the inking of a collaboration where Singapore and Chongqing will not only jointly develop PRC and Southeast Asia's logistics sector but also explore on breaking through the geographical limits of the traditional concept of a free trade zone to establish a bonded area with low-tax or tariff-free zone. In addition, both sides will also look to extend the collaboration to other sectors such as education, healthcare, infrastructure, financing, and precision engineering. Combining favourable policies, an influx of organisations alongside their employees and city urbanisation, the property sector is poised for a healthy and stable development. If these three conditions materialise, a sustainable increase in value for high-end properties coupled with a rise in office and residential property demand will result in a more vibrant and diversified property landscape.

In view of the property oversupply situation, the PRC government has placed a strong emphasis to curb property speculation with the statement "houses are for living in, not speculating on". Destocking will continue to be the core focus for some Tier 2 and 3 cities experiencing oversupply situation. These factors will continue to weigh down on property developers in 2017.

At Ying Li, the direction of our business development and positioning of our projects have always been in line with the government's growth policies. Our ongoing projects, IEC and Lion City Garden are developed according to the city's hard core demand and will be less affected by major impacts from any policy adjustments. As we expect near-term demand to be driven by residential properties, the Group will lean towards the development of residential projects to ride on that demand.

Looking forward, we continue to be sanguine of Chongqing's prospect and its impact on our business. Given the present macro uncertainty and market volatility, we will actively pursue viable opportunities while maintaining a watchful eye on risks, and at the same time adhering to corporate governance guidelines and operating in line with our strategies. These will hold us in good stead as we strive to deliver a stronger performance in the coming year.


On behalf of the Group, I would like to express my heartfelt appreciation to all the shareholders who have bestowed us with their long-term support and understanding and at the same time, I would like to urge for your continual support and trust in Ying Li. I would also like to extend my gratitude to all the dedicated employees and the Board of Directors. In particular, I would like to thank Mr. Christopher Chong who will be retiring at the upcoming Annual General Meeting after serving the Group for nine years. Mr. Chong has rendered invaluable advice in every aspect of the Group's operations during his tenure that has helped the Group to grow from strength to strength. I sincerely wish him well in his future endeavours. Moving forth, together with the Group's committed employees, we will ceaselessly devote efforts to meet your expectations and create shareholder value.

Yours sincerely,

Fang Ming
Executive Chairman & Group CEO

(1) The State Council of The People's Republic Of China, "China regains first place in IMF's world economic growth report", 19 January 2017