Business operations
Chairman

BUSINESS REVIEW

1. Market Review for Full Year of 2016

In 2016, China・s economic performance was at large stable with some progress made. The property market, being an integral part of the economy, remained critical and highly active. As before, the government launched macro austerity measures rather frequently, but more precise this round than in the past. With :Reduction of Inventory; as the major objective of property policies, and local governments implementing their own according to their specific conditions such as providing subsidies for home purchase, lowering mortgage down payment for first time buyers, increasing or reducing land supply, adjusting tax incentives, etc., a new property market landscape surfaced.

Overall, the property market had apparent success in reducing inventory in 2016. The overall inventory volume of the country kept decreasing for 9 consecutive months and growth of investment in residential properties went downward. The growth of property prices in some first-tier cities slowed down with construction of the long-term mechanism of the property market in steady progress.

The Chinese economy has entered a new normal amid adjustment, removing concerns over it having a :hard landing;. The importance of the property sector in bracing the national economy is obvious, giving those who wish to understand the essence of the property market in China a very good indicator.

2. Overall Business Review

The Group has stayed at the forefront of the PRC property market over the past years, having a shrewd grasp of government policies and the market trends, as well as customer resources and product data. It has also kept adjusting its business strategies and operational procedures and possess adequate and all-round human resources to support itself in competing in the market. It has grown from a company running traditional businesses into an all-round, online-to-offline, integrated property service operator. In 2016 particularly, we fortified our market share in Guangdong Province and at the same time stepped up development of our business in a number of other provinces and cities, achieving disciplined growth of the scale of our operation.

As at 31st December, 2016, the Group recorded turnover of HK$3,966 million, approximately 44% higher than in the previous year (2015: HK$2,760 million). Profit attributable to shareholders was HK$302 million, an increase of approximately 35% as compared with the previous year・s (2015: HK$223 million). Basic earnings per share were HK45.2 cents (2015: HK33.7 cents).

The primary and secondary property real estate agency service businesses of the Group registered a turnover of HK$2,478 million and HK$943 million respectively, accounting for 62% and 24% of the Group・s total turnover. The turnover from financial services business was HK$113 million, accounting for 3% of the Group total. The remaining 11% or HK$432 million was derived from property management business. By geographical location, Guangzhou business accounted for about 51% of the Group・s total turnover, and around 49% came from businesses outside Guangzhou.

Total new home sales for the year amounted to approximately HK$330 billion, from handling around 268,000 transactions, and the total gross floor area sold was about 28 million square meters.

i. Primary property real estate agency service business performed well and grew steadily

Benefiting from the industry consolidation and the Group・s leading position and competitive edges, the transaction volume of primary property real estate agency service business kept reaching new record. As at 31st December, 2016, turnover of the segment amounted to HK$2,478 million, representing a year-on-year increase of 37%. The Group's nationwide primary property real estate agency service business is supported by the Group・s regional management network that spans 20 cities and covers more than 150 cities, handling over 1,000 property projects. The business performed especially well in cities including Guangzhou, Hefei, Foshan, Dongguan, Jinan, Nanning and Wuhan.

ii. Secondary property real estate agency service business scaled up and kept growing

The secondary property real estate agency service business performed outstandingly during the year with turnover up by approximately 73% to approximately HK$943 million when compared with last year (2015: HK$545 million), completing around 64,000 secondary property transactions (2015: 43,000), providing strong momentum to the Group's healthy growth. With new regulatory policies implemented, the property market has become more disciplined and buyers could expect their rights to be better protected. This is helpful to encouraging buying interest and as a result the Group・s business has grown. To capture such business opportunities, the Group opened timely about 100 more branches during the year, which brought the current number of branches of the Group to around 400.

iii. Property financial services grew rapidly and generated remarkable revenue

Since it was launched in September 2015, the Internet financial service platform has been operating smoothly. With the offline micro financing business integrated with the online platform, the Group affords an innovative offer. With financial services as the theme, our financial products target to serve offline points-of-sale, secondary branches, property management community and developers via online and offline channels, and features financial products in small amounts, for diverse targets and controllable risk. Such products not only can bolster the development of the Group・s core businesses, but also bring in additional revenue to the Group. As at 31st December, 2016, the loan originated from financial services exceeded HK$3 billion and turnover was approximately HK$113 million.

iv. Property management services achieved stable growth and sound development

Property management services business made commendable development during the year, bringing in more revenue and at the same time maintaining good interaction with clients, helping to enhance the Group・s brand image. In 2016, the segment・s revenue increased from HK$351 million in 2015 to approximately HK$432 million. The Group has provided property management services to about 300 residential, office and commercial properties in Guangzhou, Shanghai, Tianjin and Wuhan with total gross floor area of approximately 30 million square meters.

v. Innovation and solid growth continued for Internet segment

To cope with the fast-changing market and constantly boost its ability to innovate and competitiveness, the Group has set up a full-time Internet technology R&D department, championed by a technical team with many professionals. The department designs and promotes various Internet products that match the business needs of the Group. The computer and mobile apps including iHouseKing (www.ihk.cn), Fang Wang Jia (房王加), Fang Zhuan Jia (房專家), He Ji Mai Lou (合記買樓) and HFmoney (合富金融) (www.hfmoney.com) have proven to be effective means in supporting market development of the Group・s agency services and financial services businesses, enabling the Group to rapidly consolidate the online-to-offline operations of all its business segments, helping to raise the Group・s brand influence and reinforce its first-mover position in the industry.