Guangzhou Investment - Interim Results

Significant Increase in 2003 Interim Profit

Acquisition of Guangzhou Construction Fuels Satisfactory Results Focus on the development of Guangzhou property business

(Hong Kong - 10 September, 2003) - Guangzhou Investment Company Limited ("GZI" or the "Group"; stock code: 0123), one of the largest integrated property developers in Guangzhou, is pleased to announce today its interim results for the six months ended 30th June, 2003.

During the period under review, the Group s turnover totaled HK$1,662,046,000, representing a year-on-year increase of 8%, which can be attributed to the satisfactory performance of the property and toll road businesses. Profit attributable to shareholders was HK$108,143,000, a significant increase of 606% as compared to the same period of last year. Basic earnings per share was HK$1.768 cents, up 363% when compared to HK$0.382 cent for the same period of last year. The Board of Directors recommends the payment of an interim dividend of HK$0.8 cent.

Mr. Ou Bingchang, Chairman of the Group, commented on the interim results and said, "Upon acquisition of Guangzhou Construction and Development Holdings (China) Limited ("GCD"), the Group became one of the few property developers in China with a balanced property portfolio consisting of substantial rental properties and a quality land bank, which can generate stable rental income and promising growth potentials. The cooperation between GZI and GCD is highly synergistic, as the Group possesses funding from both Hong Kong and China, which is beneficial to the development of the capital-intensive real estate business, whereas GCD is recognized as a renowned leading property developer in Guangzhou. The latter has a quality property mix at different stages of development that spans across different market segments including high, middle end and mass market. It is equipped with a rich pool of human resources and has also established a team of professionals focused on real estate development, management and agency services."

During the period under review, property sales contributed to 47.0% of GZI s total turnover. After the acquisition of GCD by the Group last December, the Group s different types of land resources increased significantly. For the first half of this year, total property sales area amounted to 133,000 sq. m., having grown by 291% as compared to the same of last year. Major projects for sale included Tian Jin Court, Fortune Square, Jiangnan New Mansion, Wen De Ya Qian and Southern Le Sand in Nansha District. Owing to the development of state-owned financial institutions, the sales and leasing of the Group s properties in Tian He District have been active. The demand for residential properties in both the high-end and mass markets was also strong. Overall, property sales in the first half of this year were well received by the market. Over 60% of the ten major projects launched by the Group were sold out, contributing to GZI s earnings growth for the period under review.

Rental income represented 8.5% of the Group s total turnover. During the period under review, rental properties increased sharply to 268,200 sq. m., for various gradings, locations and purposes such as Grade A offices, shopping malls and car parks. The average occupancy rate was approximately 90%.

For the first half of 2003, the total completed construction area increased by 720% to 1,430,000 sq. m., 85% of which are residential properties that are scheduled to be completed in different phases in the coming three years.

As at 30 June 2003, the Group s land reserve amounted to approximately 6,800,000 sq.m. Most of the reserves are located in Nansha, situated in the southern Guangzhou and in the central Pearl River Delta Region. It will be developed into an industrial, logistics, commerce and trading, shipping and high technology center and possesses immense development potential. Indeed, the land value of Nansha nearly doubled in 2002. Through the establishment of joint ventures and investment in stages, the Group plans to expand the development scale of the district and to achieve economies of scale earlier.

Capitalizing on GZI s brand name, the Group will focus on the development of medium-priced residential properties with a selling price ranging from RMB5,500 to 6,500 per sq.m. In addition, it will selectively develop quality offices, shopping malls and residential properties for lease and sale in order to achieve the dual objective of high growth and a steady income stream. Priority will also be given to the development of sites located in the urban area.

During the period under review, GZI Transport Limited ("GZI Transport"; stock code: 1052), the toll road subsidiary of the Group, recorded a turnover of HK$191,580,000, up by 10% as compared to the same period of last year, and contributing to 11.5% of the Group s total turnover. This profit rebound can be attributed to the mitigation of the negative factors in 2002 including traffic diversion by other new roads, the losses of Guangzhou Northern Second Ring Expressway in its first year of operations, provisions for high-tech projects and the ending of the tax holiday for certain toll road projects.

Guangzhou Paper Limited ("Guangzhou Paper") continued to maintain as one of the largest market shares in China s domestically produced newsprint market. In the first half of 2003, Guangzhou Paper posted a turnover of HK$483,671,000, a decrease of 10% as compared to the corresponding period of last year. Turnover of Guangzhou Paper contributed to 29.1% of the total turnover of the Group. The reduction in turnover was due to a reduction in the price of international newsprint, whose average price dropped by 6.2% to RMB 4,032 per ton. Moreover, the expanding production capacity in China, together with the increase in the cost of raw materials, have led to a reduction in gross profit margin. Nonetheless, the Group has implemented aggressive cost control measures, such as downsizing and early repayment of bank loans, which have reduced administrative and finance costs considerably and offset part of the increases in raw material costs.

Chairman Ou continued, "Upon the acquisition of GCD, the business structure of the Group has become clearer, with real estate business amounting to 80% of our net assets. The Group s development strategy aims to focus in the real estate business in Guangzhou while non-core businesses will be divested in due course. The Group s focus for the year is to adjust and strengthen the operations model of the core property business, accelerate construction and sales cycle, and enhance our return on net assets."

Looking ahead, Chairman Ou remarked, "The economic environment in the Pearl River Delta is favorable. Guangzhou s GDP has been growing at an annual rate of over 10%. With growing urbanization, the increasing affluence as well as upgrading needs, sales of residential units have been on the rise in the past few years. The signing of the Closer Economic Partnership Arrangement (CEPA) of Hong Kong with China in July is expected to promote the growth of the service industry in Guangdong province. Besides, the proposed construction of the Hong Kong-Zhuhai-Macau Bridge will speed up interactive development between the Pearl River Delta, Guangzhou and Hong Kong. Since there are no signs of overheating in the Guangzhou residential market, the Group believes that the People s Bank of China s policy in selectively tightening credit of real estate market will raise the capital entry barrier for property developers and avoid heavy investment in high-end property projects. It will further foster the long-term and healthy growth of the real estate market. The new measures are highly beneficial to developers that are financially sound, like GZI. As such, the Group is optimistic about the development of the Guangzhou property market in the coming few years. We will continue to launch quality projects in a bid to achieve promising results and returns for all of our shareholders."

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Financial Highlights

About GZI

The controlling shareholder of the Group, Yue Xiu Enterprises (Holdings) Limited ("Yue Xiu"), is the official representative company of the Guangzhou Municipal People s Government in Hong Kong. The Group has built up several businesses consisting of property, pulp and paper, and toll road mainly located in the Guangdong Province of Mainland China ("China"). GZI is one of the leading property developers in Guangzhou City. The Group is focusing on middle and mass market residential projects in Guangzhou. Total area of projects and land bank amounts to 8,900,000 sq. m.

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