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Monday, November 24, 2008

Silver lining for developers

Developers with a good line-up of pre-constructed projects for launch and high unbilled sales can look forward to commendable year-on-year financial results in the upcoming reporting season.

While most industry players have experienced an erosion in profit margin as a result of higher construction costs that started a year ago, companies that have projects in advanced stages of construction and recorded good take-up for their products will hold out well, performance-wise.

According to analysts’ estimates, Mah Sing Group Bhd is expected to turn in a higher net profit of RM98.7mil for its current financial year ending Dec 31 (FY08), from RM81.1mil in FY07, while revenue is set to rise to RM680.5mil from RM573.4mil.

In the first half of 2008, Mah Sing recorded sales of about RM263mil.

Mah Sing is one of the favourite picks for its sound balance sheet, strong branding and project execution capabilities.

Based on the company’s quick turnaround model, projects are usually launched six to nine months after land acquisition, although there could be some delay in the coming months following the softer market sentiment.

The company’s cash surplus of RM143mil as at Sept 30 will stand it in good stead to look for opportunistic acquisitions to expand its market presence.

In a research note, CIMB Research said Mah Sing was eyeing more land in Malaysia and hoped to wrap up several acquisitions over the next few months.

It is also scouting around for landbank in Vietnam, as the asking price for land should now be more realistic in view of the difficult market conditions there.

“Mah Sing is well-positioned to embark on more land acquisitions with its cash in hand, which should increase to RM213mil by mid-2009.

“It also has the capacity to borrow up to RM250mil should it choose to increase its net debt-to-equity ratio to a comfortable 0.5 time from 0.1 time in September,” the research house said.

Another developer with an identical financial year, United Malayan Land Bhd (UM Land), can expect some improvement for its third-quarter results following two quarters of losses.

The company recorded a loss of RM1.5mil for the first quarter ended March 31 and a further RM4mil loss in the following quarter.

However, on a year-on-year basis, UM Land’s results for FY08 are expected to be significantly short of last year’s.

In FY07, UM Land turned in a profit after-tax and minority interest of RM46mil on revenue of close to RM400mil.

The good response to its Suasana Sentral Loft condominiums in KL Sentral worth a gross development value (GDV) of more than RM300mil contributed to bottom line in FY06 and FY07.

Going forward, its latest project Suasana Bangsar, which was launched in July, will contribute to sales and earnings.

The project, with GDV of RM190mil, will take two to three years to complete.

Other projects in the pipeline will be a joint venture with MMC Corp Bhd to develop serviced residences in Persiaran Raja Chulan next year and a joint venture with Bolton Bhd to build high-end condominiums in Jalan Mayang, Kuala Lumpur, by 2010.

Meanwhile, companies which derive their income from investment property are in a better position to weather the current challenging market conditions as their rental income has been locked in.

Being the largest owner of superprime commercial properties in Kuala Lumpur City Centre (KLCC), the performance of KLCC Property Holdings Bhd is not expected to be much impacted by the market slowdown.

Hwang-DBS Vickers Research said the company had the most defensive earnings in the sector through locked-in rental income from blue-chip tenants on long-term leases.

It said KLCC Property’s earnings should continue to grow at a stable three-year cumulative average growth rate of 9%.

By The Star (by Angie Ng)

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