Dynamic Holdings Limited — Interim / Quarterly Report 2021

Feb 24, 2021

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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DYNAMIC HOLDINGS LIMITED 達力集團有限公司

(Incorporated in Bermuda with limited liability)

(Stock Code: 29)

INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2020

INTERIM RESULTS

The board of directors (the “ Directors ”) of Dynamic Holdings Limited (the “ Company ”) announces the unaudited consolidated results of the Company and its subsidiaries (the “ Group ”) for the six months ended 31 December 2020 together with comparative figures for the corresponding period in 2019. The condensed consolidated financial statements of the Group for the six months ended 31 December 2020 are unaudited and have been reviewed by the audit committee and external auditor, Deloitte Touche Tohmatsu, of the Company.

Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income

Notes Revenue 3 Direct costs Gross profit Other income, gains and losses 4 Decrease in fair value of investment properties 8 Administrative expenses Selling expenses Finance costs Share of loss of a joint venture Loss before taxation Taxation 5 (Loss) profit for the period	Six months ended 31 December 2020 2019 HK$’000 HK$’000 (Unaudited) (Unaudited) 42,337 48,782 (12,730) (13,959) 29,607 34,823 19,384 7,249 (84,669) (33,463) (23,188) (15,581) (271) (278) (985) (2,038) (3,851) (4,721) (63,973) (14,009) 29,874 21,624 (34,099) 7,615

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Note Other comprehensive income (expense) Item that will not be reclassified to profit or loss: Exchange differences on translation to presentation currency Total comprehensive income (expense) for the period (Loss) profit for the period attributable to: Owners of the Company Non-controlling interests Total comprehensive income (expense) attributable to: Owners of the Company Non-controlling interests (Loss) earnings per share(Hong Kong cents) Basic 7 Diluted

Six months ended 31 December 2020 2019 HK$’000 HK$’000 (Unaudited) (Unaudited) 172,215 (40,017) 138,116 (32,402) (34,086) 7,377 (13) 238 (34,099) 7,615 134,950 (31,970) 3,166 (432) 138,116 (32,402) (14.34) 3.14 (14.34) 3.10

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Condensed Consolidated Statement of Financial Position

Notes Non-current Assets Property, plant and equipment Right-of-use assets Investment properties 8 Interest in a joint venture 9 Amount due from a joint venture 9 Other asset Current Assets Loan receivables Trade and other receivables and prepayments 10 Amount due from a non-controlling shareholder Pledged bank deposits Fixed bank deposits Bank balances and cash Current Liabilities Trade and other payables 11 Lease liabilities Tax payable Bank loans – due within one year Net Current Assets Total Assets less Current Liabilities	At 31 December 2020 HK$’000 (Unaudited) 1,880 6,720 1,986,122 81,922 245,849 1,425 2,323,918 – 11,083 909 3,013 123,134 198,849 336,988 47,597 2,324 94,231 3,837 147,989 188,999 2,512,917	At 30 June 2020 HK$’000 (Audited) 1,980 1,067 1,910,689 78,918 220,448 1,313
		2,214,415
		– 24,385 837 4,235 145,068 134,292
		308,817
		46,401 1,131 88,395 3,840
		139,767
		169,050
		2,383,465

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Capital and Reserves Share capital Reserves Equity attributable to owners of the Company Non-controlling interests Total Equity Non-current Liabilities Lease liabilities Bank loan – due after one year Deferred tax liabilities Long-term rental deposits received	At 31 December 2020 HK$’000 (Unaudited) 237,704 1,885,275 2,122,979 40,453 2,163,432 4,468 93,749 241,846 9,422 349,485 2,512,917	At 30 June 2020 HK$’000 (Audited) 237,704 1,750,325
		1,988,029 37,287
		2,025,316
		– 95,667 253,404 9,078
		358,149
		2,383,465

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Notes:

1. BASIS OF PREPARATION

The condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”) as well as with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”).

2. PRINCIPAL ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared on the historical cost basis, except for investment properties, which are measured at their fair values.

Other than additional accounting policies resulting from application of amendments to Hong Kong Financial Reporting Standards (“ HKFRSs ”), and application of certain accounting policies which became relevant to the Group, the accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 31 December 2020 are the same as those presented in the Group’s annual financial statements for the year ended 30 June 2020.

Application of amendments to HKFRSs

In the current interim period, the Group has applied the Amendments to References to the Conceptual Framework in HKFRS Standards and the following amendments to HKFRSs issued by the HKICPA, for the first time, which are mandatorily effective for the annual period beginning on or after 1 July 2020 for the preparation of the Group’s condensed consolidated financial statements:

Amendments to HKAS 1 and HKAS 8 Definition of Material Amendments to HKFRS 3 Definition of a Business Amendments to HKFRS 9, HKAS 39 and HKFRS 7 Interest Rate Benchmark Reform Amendments to HKFRS 16 Covid-19-Related Rent Concessions

The application of the Amendments to References to the Conceptual Framework in HKFRS Standards and amendments to HKFRSs in the current period has had no material impact on the Group’s financial positions and performance for the current and prior periods and/or on the disclosures set out in these condensed consolidated financial statements.

Accounting policies newly applied by the Group

The Group has applied the following accounting policies which became relevant to the Group in the current interim period.

Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and the grants will be received.

Government grants related to income that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable. Such grants are presented under “other income, gains and losses”.

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3. REVENUE AND SEGMENT INFORMATION

Information reported to the board of Directors (the “ Board ”) of the Company, being the chief operating decision maker, for the purpose of resource allocation and assessment of performance focused on the location of the properties for property rental with property sales in prior period.

The property rental segment includes property leasing operation in the People’s Republic of China (the “ PRC ”). The Group’s investment properties portfolio, which mainly consists of offices, shopping mall, carparks and residential units, are located in Shanghai and Beijing, the PRC. The property sales segment includes sales of the Group’s trading properties in Beijing, the PRC. During the year ended 30 June 2020, the Group ceased the business of property sales as the relevant properties held for sale have been rented out and Directors have changed the intention to hold to earn rentals and/or capital appreciation.

The revenue from property rental includes variable lease payments of HK$1,975,000 (2019: HK$3,066,000) that do not depend on an index or a fixed amount, the remaining amounts are lease payments that are fixed. The revenue from property sales is recognised at a point in time.

These divisions, property rental and property sales analysed based on distinct geographical locations, are the basis on which the Group reports its segment information under Hong Kong Financial Reporting Standard 8 “Operating Segments”.

The following is an analysis of the Group’s revenue and results by reportable and operating segment for the period:

SEGMENT REVENUE REVENUE External sales SEGMENT RESULT Unallocated other income Unallocated corporate expenses Finance costs Share of loss of a joint venture Loss before taxation	Property rental Property sales Beijing Shanghai Beijing Six months ended 31 December (Unaudited) 2020 2019 2020 2019 2020 2019 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 13,165 17,903 29,172 30,879 – – (5,505) 2,822 (47,651) (2,462) – (92)	Consolidated	Consolidated
	Beijing 2020 2019 HK$’000 HK$’000 13,165 17,903 (5,505) 2,822	2020 HK$’000 42,337 (53,156) 16,152 (22,133) (985) (3,851) (63,973)	2019 HK$’000 48,782
			268 6,710 (14,228) (2,038) (4,721)
			(14,009)

The accounting policies of the operating segments are the same as the Group’s accounting policies. Segment result represents the (loss) profit from each segment without the allocation of central administration costs, exchange gain (loss), bank interest income, imputed interest income on amount due from a joint venture, finance costs and share of loss of a joint venture. This is the measure reported to the Board of the Company for the purposes of resources allocation and performance assessment.

No segment of assets and liabilities are presented as no discrete financial information is available.

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4. OTHER INCOME, GAINS AND LOSSES

Included in other income, gains and losses are: Bank interest income Exchange gain (loss), net Imputed interest income on amount due from a joint venture Government grants TAXATION The tax charge (credit) comprises: Current tax in the PRC (other than Hong Kong) Current period Deferred tax credit	Six months ended 31 December 2020 2019 HK$’000 HK$’000 (Unaudited) (Unaudited) 2,499 2,396 5,995 (2,261) 6,932 6,350 516 – Six months ended 31 December 2020 2019 HK$’000 HK$’000 (Unaudited) (Unaudited) 2,204 2,570 (32,078) (24,194) (29,874) (21,624)

5. TAXATION

No provision for Hong Kong Profits Tax has been made in the condensed consolidated financial statements as the Group has no assessable profit for both periods.

Under the Law of the PRC on Enterprise Income Tax (the “ EIT Law ”) and Implementation Regulation of the EIT Law, the tax rate of the Group’s PRC subsidiary is 25% for both periods.

Certain subsidiaries of the Company incorporated in Hong Kong and the British Virgin Islands are subject to withholding tax ranging from 10% to 25% on their taxable rental income, management fee income and interest income in the PRC.

6. DIVIDENDS

During the current interim period, no dividend in respect of the year ended 30 June 2020 (2019: a final dividend of 4 Hong Kong cents per share in respect of the year ended 30 June 2019) was declared to the owners of the Company. The aggregate amount of the final dividend declared in the prior interim period amounted to HK$9,508,000 and was paid in January 2020.

Subsequent to the end of the current interim period, the Directors of the Company have determined that an interim dividend of 1 Hong Kong cent per share amounting to HK$2,377,000 in aggregate (2019: HK$4,754,000) will be paid to the owners of the Company whose names appear in the register of members of the Company on 9 April 2021.

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7. (LOSS) EARNINGS PER SHARE

The calculation of the basic and diluted (loss) earnings per share attributable to owners of the Company is based on the following data:

(Loss) earnings (Loss) earnings for the purposes of basic and diluted (loss) earnings per share ((loss) profit for the period attributable to owners of the Company) Number of shares Weighted average number of ordinary shares for the purpose of basic (loss) earnings per share Effect of dilutive potential ordinary shares on share options Number of ordinary shares for the purpose of diluted (loss) earnings per share 8. INVESTMENT PROPERTIES FAIR VALUE At 1 July 2020 (audited) Exchange realignment Decrease in fair value of investment properties At 31 December 2020 (unaudited)

Six months ended 31 December 2020 2019 HK$’000 HK$’000 (Unaudited) (Unaudited) (34,086) 7,377 Six months ended 31 December 2020 2019 (Unaudited) (Unaudited) 237,703,681 234,810,529 – 3,384,744 237,703,681 238,195,273 HK$’000 1,910,689 160,102 (84,669) 1,986,122

The fair value of the Group’s investment properties (including residential, commercial and car park portion and office units) as at 31 December 2020 and 30 June 2020 has been arrived at on the basis of valuations carried out by Savills Valuation and Professional Services Limited, an independent firm of qualified professional valuers not connected with the Group with appropriate qualification and recent experience in the valuation of similar properties in the relevant locations. The valuation of residential and car park portion was arrived at with adoption of the direct comparison approach by making reference to comparable sales transactions as available in the market and the valuation of commercial portion and office units adopted the investment method by capitalising the rental incomes of the properties derived from the existing tenancies with due allowance for the reversionary income potential of the properties. The revaluation gave rise to a net loss arising from decrease in fair value of HK$84,669,000 (six months ended 31 December 2019: HK$33,463,000) which has been recognised in profit or loss. The ongoing 2019 Novel Coronavirus (“ COVID-19 ”) pandemic has resulted in greater market volatility and weakened leasing sentiment, which has led to a decrease in fair value of the investment properties. All the investment properties are situated in the PRC.

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9. INTEREST IN A JOINT VENTURE/AMOUNT DUE FROM A JOINT VENTURE

Cost of investment, unlisted Share of post-acquisition losses and reserves Amount due from a joint venture	At 31 December 2020 HK$’000 (Unaudited) 191,520 (109,598) 81,922 245,849	At 30 June 2020 HK$’000 (Audited) 184,787 (105,869) 78,918 220,448

Note:

Shenzhen Zhen Wah Harbour Enterprises Ltd. (“ Zhen Wah ”) was a sino-foreign equity joint venture company and indirectly held by the Company. The Group was able to exercise 50% voting power in the joint venture, which was determined by the proportion of the Group’s representatives in the board of directors of Zhen Wah.

The Group had lodged petitions for international arbitrations in respect of the dispute with the Chinese joint venture partner as to the percentages of equity interest held in Zhen Wah in prior years. Two arbitral proceedings were heard and two arbitral awards were made by China International Economic and Trade Arbitration Commission in 2008 and 2010.

Before the arbitrations, the Group injected RMB42,840,000 as investment cost to Zhen Wah, representing 80% of equity interests in Zhen Wah. Pursuant to the arbitral award made in 2008, the registered capital of Zhen Wah was confirmed to be RMB21,000,000, of which RMB10,290,000 and RMB10,710,000 were contributed by the Group and the Chinese joint venture partner, respectively, and that the equity interests of Zhen Wah were held by the Group and the Chinese joint venture partner as to 49% and 51%, respectively. The additional capital contribution of RMB32,550,000 by the Group was considered as advances to Zhen Wah by the Group.

Also, the arbitral award made in 2010 supported the distribution of profit arising from relevant income generated from a piece of land held by Zhen Wah located in Tung Kok Tau, Shenzhen, the PRC before redevelopment to which the Group is entitled being 80%.

The assets and liabilities of Zhen Wah were deconsolidated and the Group’s share of net assets and results in Zhen Wah had been accounted for as a joint venture under the equity method based on the Group’s 49% equity interest in Zhen Wah since the year ended 30 June 2009.

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The distribution of profit arising from relevant income was accounted for under the equity method based on the Group’s 49% equity interest in Zhen Wah. The additional share of 31% up to 31 December 2020 which has not been recognised by the Group amounted to HK$10,368,000 (30 June 2020: HK$10,368,000), as the Directors consider the result of the arbitration is subject to the agreement of the Chinese joint venture partner.

The operation period of Zhen Wah expired on 16 January 2014. Both joint venture partners of Zhen Wah determined not to extend its operation period and an application was lodged to liquidate Zhen Wah in prior years. The Shenzhen Intermediate People’s Court (the “ PRC Court ”) accepted the application for liquidation of Zhen Wah and appointed a law firm in the PRC as the liquidation committee of Zhen Wah in July 2016.

Based on the PRC laws and regulations and the related interpretations by an external PRC legal counsel engaged by the Group, after the expiry of the operation period and even under liquidation process, the legal identity of Zhen Wah still exists and the net assets of Zhen Wah will be distributed to the joint venture partners based on their equity contributions after the completion of the liquidation. The Directors expect that the liquidation process is not expected to complete within one year. Accordingly, the Directors continue to account for Zhen Wah as a joint venture of the Group using the equity method of accounting in these condensed consolidated financial statements. As further announced on 29 January 2021, the PRC Court accepted the application lodged by the liquidation committee of Zhen Wah to further extend the period of compulsory liquidation of Zhen Wah for six months up to July 2021.

The amount due from a joint venture is unsecured and repayable after the next twelve months from the end of the reporting period. The amount is carried at amortised cost at an effective interest rate of 6% (30 June 2020: 6%) per annum.

The Directors have assessed the recoverability of interest in a joint venture and amount due from a joint venture amounting to HK$81,922,000 and HK$245,849,000, respectively as at 31 December 2020. During the six months ended 31 December 2020, the adjustment of the statutory plans, the approval of land use plan and land construction planning permit for the new piece of land situated in Tung Kok Tau, Nanshan District, Shenzhen, were granted in favour of Zhen Wah. Based on the latest financial information and fair value of net assets of Zhen Wah, the Directors have concluded that the loss given default being minimal due to low loan to value ratio given the fair value of assets backing repayment of the advances. Therefore, no loss allowance was recognised.

Particulars of the joint venture as at 31 December 2020 and 30 June 2020 are as follows:

Name ofjoint venture Shenzhen Zhen Wah Harbour Enterprises Ltd.	Place of establishment PRC	The Group’s equity interest 49%	Principal activity
			Operation ceased_(Note)_

Note: The operation period of Zhen Wah expired on 16 January 2014. Thereafter, Zhen Wah ceased its operation and is now in the process of liquidation.

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10. TRADE AND OTHER RECEIVABLES AND PREPAYMENTS

Rentals receivable from tenants are payable on presentation of invoices.

The following is an aged analysis of trade receivables of HK$4,853,000 (30 June 2020: HK$7,953,000), net of allowance for credit losses of HK$2,272,000 (30 June 2020: HK$3,045,000), presented based on invoice date at the end of the reporting period:

0–30 days 31–60 days 61–90 days More than 90 days	At 31 December 2020 HK$’000 (Unaudited) 2,440 82 56 3 2,581	At 30 June 2020 HK$’000 (Audited) 3,404 766 337 401
		4,908

As at 31 December 2020, included in the Group’s trade receivable balances are debtors with a carrying amount of HK$172,000 (30 June 2020: HK$1,731,000) which are past due at the end of the reporting period for which the Group has provided allowance for credit losses of HK$726,000 (six months ended 31 December 2019: HK$1,482,000) under lifetime expected credit loss model and reversed the impairment allowance of HK$1,758,000 (six months ended 31 December 2019: HK$605,000) respectively. The Group does not hold any collateral over these balances. The average overdue age of these receivables is 65 days (30 June 2020: 76 days) overdue.

11. TRADE AND OTHER PAYABLES

At 31 December 2020, the balance of trade and other payables included trade payables of HK$1,714,000 (30 June 2020: HK$1,175,000). The following is an aged analysis of trade payables based on the invoice date at the end of the reporting period:

0–60 days 61–90 days Over 90 days	At 31 December 2020 HK$’000 (Unaudited) 1,016 – 698 1,714	At 30 June 2020 HK$’000 (Audited) 954 – 221
		1,175

The other payables mainly include rental deposits received of HK$16,855,000 (30 June 2020: HK$16,483,000), receipt in advance of HK$4,642,000 (30 June 2020: HK$4,814,000) and other tax payable of HK$5,505,000 (30 June 2020: HK$5,413,000).

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RESULTS REVIEW

For the six months ended 31 December 2020, the Group reported a total revenue of HK$42,337,000 (2019: HK$48,782,000) and gross profit of HK$29,607,000 (2019: HK$34,823,000), showing decrease of about 13% and 15% respectively compared with those of the previous corresponding period. These results were attributable to the reduced rental income of investment properties of the Group in mainland China denominated in renminbi yuan (“ RMB ”), with gross profit margin at about 70% (2019: 71%).

During the period under review, the Group accounted for other income of HK$19,384,000 (2019: HK$7,249,000), which arose mainly from imputed and bank interest income in the sum of HK$9,431,000 (2019: HK$8,746,000) with net exchange gain of HK$5,995,000 (2019: net exchange loss of HK$2,261,000) due to the appreciation of RMB against Hong Kong dollar (“ HKD ”). In addition, the Group recognized an aggregate decrease of HK$84,669,000 (2019: HK$33,463,000) in the fair value of the investment properties under subdued market sentiment, and administrative expenses for the period amounted to HK$23,188,000 (2019: HK$15,581,000).

Taking into account of the decrease in fair value of the investment properties together with the related effect of deferred taxation in the period, the Group recorded a loss for the period attributable to shareholders of the Company in the sum of HK$34,086,000 (2019: profit of HK$7,377,000), with basic loss per share of 14.34 Hong Kong cents (2019: basic earnings of 3.14 Hong Kong cents).

In addition, due to exchange difference on currency translation to presentation currency in HKD from functional currency in RMB, which appreciated against HKD by 7.9% (2019: devalued by 1.8%) in the period, the other comprehensive income was HK$172,215,000 (2019: other comprehensive expense of HK$40,017,000), and the total comprehensive income attributable to shareholders of the Company amounted to HK$134,950,000 (2019: total comprehensive expense of HK$31,970,000) in the period.

BUSINESS REVIEW

In the period under review, the overall revenue and results of the Group were principally derived from its operating segment in property rental in mainland China (the revenue of which was denominated in RMB), which performed adversely as compared with those of the last corresponding period in the view of the impact of the COVID-19 pandemic and weakened leasing sentiment in mainland China.

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The rental income of the Group generated from its investment properties in two major cities, Shanghai and Beijing, was in the amount of RMB36,852,000 (2019: RMB43,733,000), showing a drop of about 16% as compared with that of last corresponding period. Such rental income was presented in the financial statements in the sum of HK$42,337,000 (2019: HK$48,782,000), which represented all (2019: all) of the consolidated revenue income of the Group in the period. The fair value of these investment properties of the Group comprising shopping malls, car parks and other certain properties in Beijing and office units in Shanghai devalued in the sum of RMB73,700,000 (2019: RMB30,000,000), translating into a decrease of HK$84,669,000 (2019: a decrease of HK$33,463,000) in the period under weak market sentiment. As such, the segment results of property rental recorded a loss of RMB46,270,000 (2019: a profit of RMB322,000), presenting in a loss of HK$53,156,000 (2019: a profit of HK$360,000), which decrease was primarily due to the drop in fair value of these investment properties. As these investment properties are held as long-term investment for recurring rental income, such loss, being non-cash in nature, does not materially affect the cash flows and working capital of the Group. Excluding the effects of the changes in fair value of these investment properties and related tax effect, the underlying segment results would have been a profit of RMB27,430,000 (2019: RMB30,322,000), showing a drop of about 9.5% as compared with that of the last corresponding period.

In Beijing, the rental income generated from the well-established community mall of the Group in Chaoyang District declined with average occupancy rate about 78% (2019: 90%) throughout the period. In addition, the rental income of this segment in the period totaled RMB11,460,000 (2019: RMB16,050,000) showing a decline of about 29% due to rent concessions to tenants and stagnant retail leasing after the lock-down period, as compared with that of the last corresponding period. It translated into HK$13,165,000 (2019: HK$17,903,000) which accounted for 31% (2019: 37%) of the total revenue of the Group. The fair value of these investment properties devalued in the sum of RMB13,700,000 (2019: RMB6,000,000 for the community mall (including car parks) but excluding the other certain properties), translating into HK$15,739,000 (2019: HK$6,693,000). After taking into account of the changes in fair value of these investment properties and relevant costs, a loss of HK$5,505,000 (2019: a profit of HK$2,822,000 for the community mall (including car parks) but excluding the other certain properties) was recorded in the segment results in the period.

In Shanghai, the quality offices of the Group known as “Eton Place” which is in the prominent financial location of Little Lujiazui in Pudong had an average occupancy rate of about 77% (2019: 80%) in the period, whereas the rental income was in the sum of RMB25,392,000 (2019: RMB27,683,000), showing a decrease of about 8% under the impact of the COVID-19 pandemic, looming oversupply of office and decentralization of leasing in emerging submarkets, as compared with that of the last corresponding period. It translated into HK$29,172,000 (2019: HK$30,879,000) which accounted for 69% (2019: 63%) of the total revenue of the Group in the period. The fair value of these investment properties decreased in the sum of RMB60,000,000 (2019: RMB24,000,000) amidst stagnant market sentiment, translating to HK$68,930,000 (2019: HK$26,771,000).After taking into account of the changes in fair value of these investment properties and relevant costs, the above segment recorded a loss of HK$47,651,000 (2019: HK$2,462,000) in the period.

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During the period under review, Shenzhen Zhen Wah Harbour Enterprises Ltd. (“ Zhen Wah ”, a joint venture in which the Company holds 49%), which holds interests in a piece of land located in Tung Kok Tau, Nanshan District, Shenzhen (“ Existing Land ”), continued its proceedings of compulsory liquidation (“ Compulsory Liquidation ”) which commenced in July 2016 under supervision of the PRC court and management of a liquidation committee (“ Liquidation Committee ”) as appointed by the PRC court.

In the period, the Group continued to closely monitor the Compulsory Liquidation with the assistance of its legal advisers. Meanwhile, the Group worked actively with the Liquidation Committee, relevant official authorities and Chinese joint venture partner regarding the Compulsory Liquidation, compensation for demolition and relocation of occupants on the Existing Land and swap of the land (“ Land Swap ”) under the official agreement for the Land Swap (“ Agreement ”) entered into between 深圳市規劃和自然資源局南山管理局 (Nanshan Administration of Shenzhen Municipal Bureau of Planning and Natural Resources) (“ Bureau ”) and Zhen Wah in August 2019 in accordance with the relevant laws and regulations, as announced on 11 September 2019.

Pursuant to the Agreement, Zhen Wah and the Bureau agreed to the Land Swap such that the Existing Land which is owned or occupied by Zhen Wah has to be surrendered by Zhen Wah to the Bureau (“ Surrender Land ”) in return for a new piece of land situated in Tung Kok Tau, Nanshan District, Shenzhen (“ New Land ”), to be granted by the Bureau to Zhen Wah without additional land premium payable subject to the terms and conditions as set out therein.

In the period under review, the Group kept on working closely with the relevant parties for demolition, relocation and compensation of an ex-tenant regarding the delivery of vacant possession of the Surrender Land and for various appropriate applications and approvals as required for the Land Swap in accordance with the Agreement, and in alignment with city planning near the New Land including but not limited to an opera house project and metro lines and station nearby. Furthermore, an agreement with the relevant official authorities was concluded for demolition, relocation and compensation of those buildings, erections and equipment on the Surrender Land, which is subject to, among others, clearance and delivery of those buildings, erections and equipment thereon by Zhen Wah to the relevant official authorities as agreed; and settlement of any economic disputes by Zhen Wah with ex-tenant(s) or any third party(ies) arising therefrom in accordance with the relevant applicable laws, regulations and rules of the PRC.

Meanwhile, the adjustment of the 法定圖則 (statutory plans), the approval of 用地方案圖 (Land Use Plan) and 建設用地規劃許可證 (Land Construction Planning Permit) for the New Land were granted in favour of Zhen Wah in the period. The New Land comprises two plots of land with site area of approximately 109,000 square metres and land usage as residential, commercial including office and supporting ancillary facilities, of which the total developable gross floor area is approximately 395,000 square metres for multi-purpose development.

As further announced on 29 January 2021, 深圳市中級人民法院 (Shenzhen Intermediate People’s Court) in the PRC accepted the application lodged by the Liquidation Committee to further extend the period of Compulsory Liquidation of Zhen Wah for six months up to July 2021.

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Regarding the application for international arbitration (“ Arbitration ”) with Shenzhen Court of International Arbitration (also known as South China International Economic and Trade Arbitration Commission) (“ Arbitration Commission ”) in June 2017 to determine the precise entitlement of the Group regarding rent, income and profit generated from the Existing Land pursuant to a shareholders’ agreement entered into between the Group and the Chinese joint venture partner on 20 December 1996 in relation to Zhen Wah (“ Shareholders’ Agreement ”) and as announced on 31 July 2020, an arbitral award dated 14 July 2020 relating to the Arbitration was made by the Arbitration Commission (“ Arbitral Award ”). Pursuant to Arbitral Award, compensations (政府收地補償) paid or to be paid by the Shenzhen municipality government for resumption of part of the Existing Land from Zhen Wah on various occasions prior to 2012 do not constitute rent, income or profit generated from the Existing Land under the Shareholders’ Agreement, pursuant to which the Group is entitled to 80%. This does not affect the Group’s entitlement to 49% equity interests in Zhen Wah, including but not limited to repayment of all debts and applicable expenses prior to any distribution. Irrespective of the result of the Arbitration, Zhen Wah will be wound up in the liquidation process in due course. And the Group continued to seek legal advice and take expedient action to strive for best interest of the Group in Zhen Wah and its assets.

FINANCIAL REVIEW

Capital Structure

The financial position of the Group remains sound and liquid, and its financing and treasury policies are managed and controlled at the corporate level and in a prudent manner during the period. The main objective is to utilize the Group’s funds efficiently and to manage the financial risks effectively. At 31 December 2020, the equity attributable to owners of the Company amounted to RMB1,786,784,000 (30 June 2020: RMB1,815,945,000) with net asset value per share of RMB7.52 (30 June 2020: RMB7.64), translating to HK$2,122,979,000 (30 June 2020: HK$1,988,029,000) with net asset value per share of HK$8.93 (30 June 2020: HK$8.36). Total unsecured and secured bank borrowings of the Group amounted to about HK$97,586,000 (30 June 2020: HK$99,507,000), which were in Hong Kong dollars and repayable within three years on floating rate basis. As at 31 December 2020, the gearing ratio of the Group was 5% (30 June 2020: 5%) based on the total debt of the Group to its equity attributable to owners of the Company. The exposure to foreign currency fluctuations of the Group in the period under review was mainly the appreciation of RMB against HKD, resulting in the net exchange gain of HK$5,995,000 (six months ended 31 December 2019: net exchange loss of HK$2,261,000) and exchange difference on translation functional currency of RMB to presentation currency of HKD, amounting to other comprehensive income of HK$172,215,000 (six months ended 31 December 2019: other comprehensive expense of HK$40,017,000) for the period under review. No financial instruments were used for hedging purpose in the period. The Group will continue to closely monitor the impact of fluctuation of RMB in order to minimize its adverse impact.

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Financial Resources and Liquidity

In the period under review, there was sufficient cashflow as generated by rental revenue of investment properties in Shanghai and Beijing. As at 31 December 2020, the bank balance and deposits and cash of the Group stood at HK$321,983,000 (30 June 2020: HK$279,360,000) in aggregate and denominated primarily in RMB. With sufficient cashflow, the Group maintained un-utilized credit facilities of HK$11,000,000 (30 June 2020: HK$11,000,000) as working capital at floating interest rate. The Group’s net current assets amounted to HK$188,999,000 (30 June 2020: HK$169,050,000) with current ratio of 2.28 as at 31 December 2020 (as at 30 June 2020: 2.21). No significant capital expenditure commitments and authorizations was made in the period under review.

Pledge of Assets and Contingent Liabilities

As at 31 December 2020, the Group pledged its properties with a total carrying value of HK$817,452,000 (30 June 2020: HK$798,082,000), an assignment of rental and sale proceeds from such properties and a charge over shares in respect of a wholly-owned subsidiary of the Group to financial institutions as security against general banking facilities granted to the Group, and also pledged certain of its bank deposits in the sum of HK$3,013,000 (30 June 2020: HK$4,235,000) to banks to secure banking facilities and home loans granted to the home buyers of property project of the Group. As at the end of the reporting period, the Group has given guarantees in respect of settlement of home loans provided by banks to the home buyers of a property project in Beijing. As at 31 December 2020, the Group had given guarantees in respect of such home loans of HK$269,000 (30 June 2020: HK$511,000). The Directors of the Company consider that the fair values of these financial guarantee contracts at their initial recognition and at the end of the reporting period are insignificant on the basis of the low loan ratio.

PROSPECTS

Notwithstanding challenges related to the adverse impact of the COVID-19 pandemic and the on-going China-U.S. tensions, mainland China’s determined approach with swift action and control to contain the COVID-19 pandemic has proven to be effective such that mainland China’s economy can be expected to resume on its path to stable and sustainable growth coupled with appropriate official effort and supporting fiscal, economic and social measures to curtail the post-pandemic impact. It is believed that mainland China will leverage its huge domestic market and rising urbanization rate, focusing on a robust domestic demand and digital innovation to boost consumption and unleash market potential that will improve leasing activities of the office and retail sectors. This is expected to lead to a rebound in consumption bringing back business and consumer confidence in mainland China spurring retailer’s investment in store network expansion which will serve as a positive catalyst for our investment properties in Beijing and Shanghai.

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In Beijing, it is expected vacancy rates will generally stabilize in 2021 with rents requiring additional time to fully recover to pre-COVID-19 pandemic level in the short-term. To safeguard tenants and maintain occupancy rate and recurring revenue, the Group will endeavor to adjust leasing and marketing strategies, to revamp tenant mix alongside with competitive and effective rental strategies to attract new retailers and retain existing retailers.

In Shanghai, it is expected that there will be a better or stable business environment under the rebound in the economy in mainland China leading to increase in business confidence. However, the net demand for office space in core business districts will encounter keen competition, in the form of cost-saving leasing terms, competitive rental and diversified leasing services, all presenting downward pressure on office rental income in Lujiazui in the short-term. Yet, it is believed that the new metro line and station near Eton Place to be completed in 2021/2022 will enhance its prime location for leasing. Meanwhile, the Group will continue to deploy its competitive and effective rental strategies from time to time to attract new tenants and retain existing tenants so as to enhance our rental level and leasing rate.

Shenzhen, as the official Shenzhen Demonstration Pilot Zone and high-tech hub, is expected to further grow into a center of innovation, entrepreneurship and creativity with high-quality development and increasing global influence under official support, and act as the main driver for the development of Guangdong-Hong Kong-Macao Greater Bay Area. This will enhance the development value of the New Land in Tung Kok Tau, Nanshan District, Shenzhen. The Group will continue to act proactively for safeguarding the best interests of the Company in relation to Zhen Wah and its assets. It will keep on adopting the best available measures and take expedient action with a view to protecting the Company’s best interests in the context of the Compulsory Liquidation. The Group will closely monitor the development of the Compulsory Liquidation and continue to seek PRC legal advice and to further strive for the best interest of the Group in Zhen Wah and its assets.

Meanwhile, the Group will continue to work with the relevant parties to monitor and procure the progress of Land Swap including demand for ex-tenant(s) to duly vacate and deliver the Surrender Land, and to optimize city planning of the New Land in line with the projects of opera house and infrastructure nearby. However, there is no assurance that the Land Swap can be completed without further significant delay and impediments, or that the execution of the relevant land contract will not arise.

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Based on the PRC legal advice received by the Group, assets of Zhen Wah will eventually be sold by way of public auction or disposed of by other applicable means subject to endorsement of the PRC court upon receipt of proposal of the Liquidation Committee in accordance with the PRC laws, and any surplus (after settlement of all relevant liabilities including taxation) will be distributed to the joint venture partners in accordance with their equity contributions. However, the issues involved in the Compulsory Liquidation are complex and sophisticated, involving not only the PRC court but also various government authorities. There is no assurance that the Compulsory Liquidation will not be subject to significant delay, oppositions, obstructions and further dispute or litigation with respect to the matters of Zhen Wah and/or its assets.

INTERIM DIVIDEND

The Directors have declared an interim dividend of 1 Hong Kong cent (2019: 2 Hong Kong cents) per share for the six months ended 31 December 2020 to the shareholders of the Company whose names appear on the register of members on Friday, 9 April 2021. The warrants for the interim dividend are expected to be despatched to those entitled on or about Monday, 26 April 2021.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from Wednesday, 7 to Friday, 9 April 2021 (both days inclusive), during which period no transfer of shares of the Company will be registered. In order to qualify for the interim dividend, all properly completed transfer forms accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration not later than 4:30 p.m. on Thursday, 1 April 2021.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the period, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities.

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CORPORATE GOVERNANCE

Throughout the six months ended 31 December 2020, the Company has applied the principles and has complied with the code provisions as set out in the Corporate Governance Code stipulated in Appendix 14 to the Listing Rules, save and except deviation from code provision E.1.2. At the annual general meeting of the Company held on 4 December 2020 (“ AGM ”), the chairman of the Board was unable to attend the AGM due to other business engagements. Meanwhile, management and external auditor of the Company together with the chairmen and/ or members of the Board’s committees attended the AGM to answer relevant questions raised by and understand the views of the shareholders of the Company thereat.

By Order of the Board Dynamic Holdings Limited CHIU Siu Hung, Allan Chief Executive Officer

Hong Kong, 24 February 2021

As at the date of this announcement, the Board of the Company comprises Dr. TAN Lucio C. (Chairman), Mr. CHIU Siu Hung, Allan (Chief Executive Officer), Mrs. TAN Carmen K., Mr. PASCUAL Ramon Sy, Mr. CHUA Joseph Tan and Ms. TAN Vivienne Khao as executive Directors; and Mr. CHONG Kim Chan, Kenneth, Dr. FOK Kam Chu, John, Mr. GO Patrick Lim, Mr. NGU Angel and Mr. MA Chiu Tak, Anthony as independent non-executive Directors.

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