The operating environment for the Group's property investment and development business remains tough during the period ended 30th September,2011. Property market in Guangdong Province of Mainland China("PRC")is still under keen competition. The activities of the Group's property projects, which are mainly located in the Guangdong Province, continue at a low level during the period.

The Group's completed properties for sale - Ever Success Plaza, comprising of over 440 residential units standing on 3 levels of commercial arcades and car parks, is located at a convenient and prime location with a river view in Zhongshan, Guangdong Province. The competition of the property market in Zhongshan is keen. There are abundant supplies of properties with modern design. Due to the vacancy of the commercial arcades, the occupancy rate of the residential units continues to drop. The management has put much effort in marketing the properties and is still trying hard to improve the operation of the commercial arcades. The rental income earned by the Group from Ever Success Plaza during the period is decreased by 7.6%. The Group has sold 1 residential unit during the period under review. As at 30th September, 2011, 223 residential units remained to be sold, out of which 118 residential units were let out.

With regard to the investment in Cong Hua White Swan Bow Yuen Real Estate Development Limited("Cong Hua Bow Yuen"), the chance for the extension of the joint venture period of Cong Hua Bow Yuen remains very remote. Full provision for impairment loss against the property held by Cong Hua Bow Yuen had been made in the financial statements of the Group in the prior years.

 

Upon completion of the subscription by TCL Industries Holdings (HK) Limited("TCL") in October 2010, Termbray Petro-king Oilfield Services (BVI) Limited ("Termbray Petro- king") is owned as to 45.9%, 44.1% and 10.0% by Termbray Natural Resources Limited, a wholly owned subsidiary of the Group, King Shine Group Limited and TCL respectively. Termbray Petro-king has ceased to be subsidiary of the Company and has become an associate of the Company. The assets and liabilities of Termbray Petro-king is no longer consolidated to the consolidated financial statements of the Group.

The last financial year end date for Termbray Petro-king Group is 31st December, 2010. For the purpose of applying the equity method of accounting, the audited consolidated financial statements of Termbray Petro-king Group for the year ended 31st December, 2010 have been used for the last audited financial statement of the Group, as the Group considers that it is impracticable for Termbray Petro-king Group to issue a separate set of audited consolidated financial statements as of 31st March, 2011.

During the current period under review, the Group has applied the equity method of accounting for the unaudited results of Termbray Petro-king Group as an associate for the six months period from 1st January, 2011 to 30th June, 2011. Any significant transaction for the period from 1st July, 2011 to 30th September, 2011 has been adjusted. For the comparative reporting period, the Group has accounted for the unaudited result of Termbray Petro-king Group from 1st April, 2010 to 30th September, 2010 as subsidiaries under discontinued operations.

For the period from 1st January, 2011 to 30th June, 2011, Termbray Petro-king Group achieved a turnover of HK$191 million. During the period under review, Termbray Petro- king Group gained substantial recognition on its capability of provision of high end oilfield technical solutions in Mainland China and the overseas, especially the Middle East. Leveraging on its highly dedicated professional engineering team with extensive overseas experience,Termbray Petro-king Group has started to explore market opportunities of those non-chinese oilfield operators in the Middle East in order to further expand its overseas customer base. To further enhance its competency in oilfield technology, Termbray Petro-king Group entered into research and development and manufacture of oilfield equipments through acquisitions in the first half of 2011. The directors considered that the overall performance of Termbray Petro-king Group for the period under review is satisfactory.

Included in the net fair value of the Group's share of Termbray Petro-king Group's identifiable assets and liabilities is intangible assets in relation to incomplete contracts of HK$66,338,000, determined based on the income-based method. Such intangible assets are amortised according to the management expectation of realization of profits of the incomplete contracts over their estimated useful lives of one to two years. The Group's share of result of an associate for the current financial period ended 30th September, 2011 has accounted for an amortization of the intangible assets in relation to incomplete contracts of HK$31.9 million. The balance of the intangible assets is expected to be amortised in the financial year ending 31st March, 2012.

Most of the contracts completed by Termbray Petro-king Group during the current financial period are incomplete contracts as of October 2010. Thus, most of the Group's share of operating result of Termbray Petro-king Group for the current financial period have been offset by the amortisation of the intangible assets in relation to incomplete contracts.

The major customers of Termbray Petro-king Group acquired several massive overseas oil reserves which created substantial demand for experienced oilfield engineering and consultancy services. Termbray Petro-king Group has the technical know how to provide comprehensive oilfield development design and consultancy services and is well recognised in the sector as one of the best oilfield service company from China. During the period, Termbray Petro-king Group has gained substantial progress in developing new customers in the Middle East, and is now working hard on them and this will secure business growth of Termbray Petro-king Group in future.

Termbray Petro-king Group has strengthened its technical communication with its domestic customers and introduced advanced technology from abroad to them. The management expected that this would help Termbray Petro-king Group enhances its marketing and sales efforts and domestic sales in near future.

 

Treasury Investment Activity

The Group still holds a substantial amount of funds of approximately HK$593 million which have been mainly placed as short term bank deposits with large financial institutions in Hong Kong.

Outlook

The global economy has been recovering from the global financial crisis happened in 2008. However, the debt crisis in Europe today has an unpredictable impact on the recovery of global economy. United States and China are experiencing various challenges after the global economic crisis. In United States, the recovery progress of its economy is slower than expected. In China, Central government has implemented various tightening monetary policies to cool down its economy, especially the overheated property market and high inflation rate. We believe China will continue to play a key role in the future global economic recovery. The Group is confidence in capitalising on these opportunities and will grasp every business opportunities available to build up its own distinctive strength and to explore new businesses in China.

Property investment and development has been the principal business of the Group for all these years and the Group has spent a lot of resources to look for investment opportunities in the property markets in the PRC, especially Guangdong province. However, due to the intense competition of the property market in Guangdong province, the Group has not yet acquired any land or properties during the period under review, but the Group will still continue to explore the investment opportunities in the property markets in the PRC.

Termbray Petro-king Group is working on several projects in overseas markets, particularly in the Middle East. These projects will last for several years. We believe that China national oil companies will continue their investment in overseas oilfields. As Termbray Petro-king Group has extensive overseas oilfield experience and has maintained a very good relationship with those China national oil companies, we believe that Termbray Petro-king Group is likely to be benefited from the capex investment of the China national oil companies in their overseas oilfields. We are cautiously optimistic about the future performance of Termbray Petro-king Group.

The Group will continue to operate its property investment and development business and be engaged in oilfield engineering and consultancy services through its interest in Termbray Petro-king Group. The Group will cautiously explore investment opportunities which will result in a steady growth in the Group's long term performance. On the other hand, there exists some underlying risk factors such as oil and commodity price volatility, interest rate movements, the recovery progress of the global economy and natural disasters which cannot be ignored. The Group remains cautiously optimistic about the year ahead in respect of its business and has the confidence to strengthen its competitiveness and to build value for our shareholders.