Dafeng Port Heshun Technology : Announcements and Notices - First Quarterly Results Announcement for the Three Months Ended 31 March 2017

Dafeng Port Heshun Technology Company Limited

大豐港和順科技股份有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8310) FIRST QUARTERLY RESULTS ANNOUNCEMENT FOR THE THREE MONTHS ENDED 31 MARCH 2017 CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET OF THE STOCK EXCHANGE OF HONG KONG LIMITED

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Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM.

Hong Kong Exchanges and Clearing Limited and the Stock Exchange 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.

This announcement, for which the directors (the "Directors") of Dafeng Port Heshun Technology Company Limited (the "Company") collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on GEM of the Stock Exchange (the "GEM Listing Rules") for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this announcement is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this announcement misleading.

The board of Directors of the Company (the "Board") is pleased to present the unaudited condensed consolidated financial results of the Company and its subsidiaries (collectively referred to as the "Group") for the three months ended 31 March 2017 (the "First Quarterly Financial Statements") together with the comparative figures for the corresponding periods in 2016 as follows:

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the three months ended 31 March 2017

Unaudited

Three months ended 31 March
2017	2016
Note	HK$'000	HK$'000
Revenue	3	695,276	49,344
Cost of sales	(681,443)	(42,135)
Gross profit	13,833	7,209
Other income	6,363	923
Administrative expenses	(21,168)	(14,217)
Finance costs	(950)	(154)
Share of results of associates	(429)	6
Loss before taxation	4	(2,351)	(6,233)
Taxation	5	(374)	60
Loss for the period	(2,725)	(6,173)
Other comprehensive income:
Item that may be reclassified to profit or loss in subsequent periods: Exchange difference arising from translation of foreign operations	(596)	(165)
Total comprehensive (loss)/income for the period	(3,321)	(6,338)

Unaudited Three months ended

31 March

2017	2016
Note	HK$'000	HK$'000

Loss attributable to:

Equity holders of the Company	(2,693)	(6,163)
Non-controlling interests	(32)	(10)

Total comprehensive loss attributable to:

(2,725) (6,173)

Equity holders of the Company	(3,289)	(6,328)
Non-controlling interests	(32)	(10)

Loss per share attributable to equity holders of the Company

(3,321) (6,338)

Basic and Diluted (HK cents) 7 (0.21) (0.55)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the three months ended 31 March 2017

Attributable to equity holders of the Company

Share- based

Non-

Share capital

Share premium

Capital reserve

Exchange reserve

Statutory reserve

Other reserve

payment reserve

Accumulated

profits Total

controlling

equity

Total interests

HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000

At 1 January 2016

(audited) 11,200 106,171 (7,337) 891 170 (6,857) - 169 104,407 335 104,742

-	-	-	(165)	-	-	- (6,163)	(6,328)	(10)	(6,338)
11,200	106,171	(7,337)	726	170	(6,857)	- (5,994)	98,079	325	98,404

Loss and total comprehensive income for the period

At 31 March 2016 (unaudited)

Attributable to equity holders of the Company

Share- based

Non-

Share

Share

Capital

Exchange

Statutory

Other

payment Accumulated

controlling

Total

capital

premium

reserve

reserve

reserve

reserve

reserve

profits Total

equity

interests

HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000

At 1 January 2017

(audited) 12,880 201,419 (7,337) (3,134) 303 (6,857) 3,063 (36,923) 163,414 200 163,614

-	-	-	(596)	-	-	-	(2,693)	(3,289)	(32)	(3,321)
12,880	201,419	(7,337)	(3,730)	303	(6,857)	3,063	(39,616)	160,125	168	160,293

Loss and total comprehensive income for the period

At 31 March 2017 (unaudited)

NOTES TO THE UNAUDITED FIRST QUARTERLY FINANCIAL STATEMENTS

For the three months ended 31 March 2017

1. CORPORATION INFORMATION

   The Company was incorporated in the Cayman Islands on 13 September 2011 as an exempted company with limited liability under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The address of the registered office of the Company is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. The Company is an investment holding company.

2. BASIS OF PREPARATION

   The First Quarterly Financial Statements have been prepared in accordance with Hong Kong Financial Reporting Standards ("HKFRS"), which collective term includes all applicable individual HKFRS, Hong Kong Accounting Standards ("HKAS") and Interpretations issued by the Hong Kong Institute of Certified Public Accountants, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance (Cap 622 of the Laws of Hong Kong). The First Quarterly Financial Statements also complies with the applicable disclosure requirements under the GEM Listing Rules.

   The First Quarterly Financial Statements have been prepared on a basis consistent with the accounting policies adopted in the Group's audited financial statements for the year ended 31 December 2016.

   Adoption of new/revised HKFRS

   The adoption of the new/revised HKFRS that are relevant to the Group and effective from the current period, did not have any significant effect on the results and financial position of the Group for the current and prior accounting periods.

   The Group has not early adopted any new/revised HKFRS that have been issued but are not yet effective for the current period. The Directors have already commenced an assessment of the impact of these new and revised HKFRS but are not yet in a position to reasonably estimate whether these new and revised HKFRS would have a significant impact on the Group's results of operations and financial position.

3. REVENUE

   Revenue, which represents income from provision of integrated logistics freight services, provision of fuel cards, tractor repair and maintenance services and insurance agency services, trading business, and petrochemical storage business is analysed by category as follows:

   Unaudited Three months ended

   31 March

   2017 HK$'000	2016 HK$'000
   Income from provision of integrated logistics freight services	66,754	43,741
   Income from provision of fuel cards Tractor repair and maintenance services and insurance agency services fee	7,028 121	5,513 90
   Income from trading business Income from provision of petrochemical storage business	615,557 5,816	- -
   695,276	49,344

4. LOSS BEFORE TAXATION

   Unaudited Three months ended

   31 March

   2017 HK$'000	2016 HK$'000
   This is stated after charging (crediting):
   Cost of inventories	609,655	-
   Depreciation	5,763	1,305
   Operating lease payments on premises Finance costs Interest on bank loans, overdrafts and other borrowings wholly repayable within five years	604 683	2,864 62
   Finance charge on obligations under finance leases	267	92

5. TAXATION

   Hong Kong Profits Tax has been provided at the rate of 16.5% (2016: 16.5%) of the estimated assessable profits for the period. The People's Republic of China (the "PRC") Enterprise Income Tax is calculated at the prevailing tax rate at 25% (2016: 25%) on taxable income determined in accordance with the relevant laws and regulations in the PRC.

   Unaudited Three months ended

   31 March

   2017 2016

   HK$'000 HK$'000

   Current tax

   Hong Kong Profits Tax

   - Current period - (60)

   PRC Enterprise Income Tax
   - Current period	(374)	-
   - Under-provision in prior period	-	-

   Total income tax recognised in profit or loss (374) (60)

6. DIVIDEND

   The Board did not recommend the payment of an interim dividend for the three months ended 31 March 2017 (2016: Nil).

7. LOSS PER SHARE

   Basic loss per share for the three months ended 31 March 2017 and 2016 are calculated by dividing the loss attributable to the equity holders of the Company by the weighted average number of ordinary shares in issue.

   Unaudited Three months ended

   31 March

   2017 HK$'000	2016 HK$'000
   Loss attributable to equity holders of the Company	(2,693)	(6,163)
   Weighted average number of ordinary shares in issue	1,288,000,000	1,120,000,000
   Basic loss per share (HK cents)	(0.21)	(0.55)

   Basic and diluted loss per share are the same as the Company did not have any dilutive potential ordinary shares during the three months ended 31 March 2017 and 2016.

8. APPROVAL OF THE UNAUDITED CONSOLIDATED FIRST QUARTERLY FINANCIAL STATEMENTS

The First Quarterly Financial Statements were approved and authorised for issue by the Board on 9 May 2017.

MANAGEMENT DISCUSSION AND ANALYSIS BUSINESS REVIEW

For the three months ended 31 March 2017 (the "Period"), the Group was principally engaged in trading business, the provision of integrated logistics freight services and the relevant supporting services and petrochemical products storage business.

Our major business activities can be divided into below categories during the Period:

1. Trading Business

   The Group engages in the business of trading, importing and exporting of electronic products and various other products. During the Period, the Group's trading business recorded revenue of approximately HK$615.6 million (2016: Nil).

2. Integrated logistics freight services

   During the Period, the Group's revenue in integrated logistics freight services recorded an increase of approximately 52.6% to approximately HK$66.8 million (2016: HK$43.7 million).

3. Supporting Services

   The Group's revenue from supporting services which comprised provision of fuel cards and tractor repair and maintenance services and insurance agency services, increased from approximately HK$5.6 million for the three months ended 31 March 2016 to approximately HK$7.1 million for the Period.

4. Provision of fuel cards

   During the Period, the increase in the Group's supporting services revenue was mainly driven by the increase in revenue from provision of fuel cards. The relevant revenue increased by approximately 27.5% to approximately HK$7.0 million (2016: HK$5.5 million). The Group will continue to increase marketing efforts for the promotion discount offered to our clients.

5. Tractor repair and maintenance services and insurance agency services Tractor repair and maintenance services and insurance agency services, albeit their contribution to our Group's revenue being relatively insignificant, served as major types of value-added-services to our land and ocean freight clients during the Period. The relevant revenue increased by approximately 34.4% to approximately HK$121,000 during the Period (2016: HK$90,000).

6. Petrochemical Products Storage Business

The Group engages in petrochemical products storage business through 江蘇中南滙 石化倉儲有限公司 (Jiangsu Zhongnanhui Petrochemical Storage Company Limited*). During the Period, the Group's petrochemical products storage business recorded revenue of approximately HK$5.8 million (2016: Nil).

FINANCIAL REVIEW

The Group's revenue increased by approximately 1,309.0% to approximately HK$695.3 million for the Period (2016: HK$49.3 million). The increase in revenue was mainly attributable to the increase in revenue of the Group's trading business.

The Group's cost of sales increased by approximately 1,517.3% to approximately HK$681.4 million for the Period (2016: HK$42.1 million), which was mainly driven by the increase in cost of the trading business, the new business developed by the Group during last year.

With the combined effects of revenue and cost of sales, the Group's gross profit margin decreased to approximately 2.0% for the Period (2016: 14.6%), which was mainly due to the low profit margin of the Group's trading business.

The Group's finance cost amounted to approximately HK$950,000 for the Period (2016: HK$154,000), the finance costs consist of interests on bank loans, overdrafts and other borrowings, the finance charge on the obligations under finance leases as well as interest on consideration payable in respect of the acquisition of 大豐海港港口物流有限公司 (Dafeng Harbour Port Logistics Company Limited*).

The Group recorded the loss for the Period of approximately HK$2.7 million (2016: HK$6.2 million). The loss attributable to the equity holders of the Company was approximately HK$2.7 million (2016: HK$6.2 million) and the loss per share was 0.21 HK cents (2016: 0.55 HK cents).

Capital structure

As at 31 March 2017, the Group's total equity attributable to equity holders of the Company amounted to approximately HK$160.1 million (31 December 2016: HK$163.4 million).The capital of the Company mainly comprised ordinary shares, share premium and capital reserves.

Dividend

The Board did not recommend the payment of an interim dividend in respect of the Period (2016: Nil).

Pledge of assets

The Group used facilities from its bank and other borrowings to finance the expansion of its business. Secured borrowings are secured by the Group's property, plant and equipment, having carrying amounts of approximately HK$41.6 million as at 31 March 2017 (31 December 2016: HK$44.3 million), prepaid lease payments of approximately HK$43.5 million as at 31 March 2017 (31 December 2016: HK$43.1 million) and pledged bank deposits of approximately HK$1.3 million as at 31 March 2017 (31 December 2016: HK$1.3 million).

DISPOSALS OF EQUITY INTERESTS IN SUBSIDIARIES

Disposal of 49% equity interests in Qianhai Mingtian and termination of the Subscription Agreement

On 6 March 2017, Dafeng Port Heshun International Investment Limited (大豐港和順國際投 資有限公司) ("Heshun International"), an indirect wholly-owned subsidiary of the Company, entered into an equity transfer agreement (the "Equity Transfer Agreement") with 深圳市正億企業管理有限公司 (Shenzhen Zhengyi Enterprise Management Company Limited*) ("Zhengyi Enterprise"). According to the Equity Transfer Agreement, Zhengyi Enterprise agreed to purchase, and Heshun International agreed to sell 49% of the equity interest in 前海明天供應鏈（深圳）有限公司 (Qianhai Mingtian Supply Chain (Shenzhen) Company Limited*) ("Qianhai Mingtian") (the "Disposal") in consideration of Mr. Wu Heng ("Mr. Wu") entering into a deed of termination (the "Deed of Termination"), pursuant to which, among other things, the Company is released from its obligations to allot new shares of the Company to Mr. Wu under a subscription agreement (the "Subscription Agreement") dated 19 June 2016 upon completion of the Disposal.

For further details, please refer to (1) the announcements of the Company dated 19 June 2016 and 20 June 2016 in relation to the establishment of Qianhai Mingtian and the Subscription Agreement; and (2) the announcement of the Company dated 6 March 2017 and the circular of the Company dated 27 March 2017 in relation to the Disposal and the Deed of Termination.

Disposal of 49% of the issued share capital in Gamma Logistics (B.V.I.) Corporation ("Gamma Logistics")

On 13 March 2017, the Company and Wharf Limited entered into a disposal agreement (the "Disposal Agreement"), pursuant to which, the Company conditionally agreed to sell, and Wharf Limited conditionally agreed to purchase 49% of the issued share capital of Gamma Logistics at a consideration of HK$8.5 million (the "Gamma Disposal").

All terms and conditions under the Disposal Agreement were fulfilled on 11 April 2017. Following the completion of the Gamma Disposal, Gamma Logistics became a direct non- wholly owned subsidiary of the Company.

For further details, please refer to (1) the announcements of the Company dated 13 March 2017 and 11 April 2017, and (2) the circular of the Company dated 31 March 2017 in relation to the Gamma Disposal.

Save as disclosed, the Group had no significant investment, material acquisitions and disposals of subsidiaries and associated companies during the Period.

OUTLOOKS

Having regard that the integrated logistics freight services have caused substantial losses to the Group in the past few years. The Group intends to focus less on the integrated logistics freight services.

Looking forward, the Group will continue to expand its trading business. In this regard, the Group intends to venture into the petrochemical products trading business, with a view to diversifying the revenue stream and business portfolio of the Group, and to enhance the interest of the shareholders of the Company.

CONTINGENT LIABILITIES

As at 31 March 2017, the Group had no material contingent liabilities (31 December 2016: Nil).