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Thursday, March 19, 2009

‘Persistent weakness’ in property sector this year

KUALA LUMPUR: The Malaysian property sector will likely see “persistent weakness” for the rest of this year, according to panellists for the discussion on Capitalising on Property and REITs.

Property consultancy Regroup Associates executive chairman Chris Boyd said the country’s property sector had peaked late last year.

Chris Boyd

“We are likely to see a persistent weakness in the market this year. It will be very difficult to buy,” he said, adding that the mid-range segment was “relatively safe” at present.

“The middle class has grown in the past 25 to 30 years, with relatively decent job security that should still sustain the middle market,” he said.

Boyd proposed that “any time this year is a good time to buy” property, but Ho Chin Soon Research Sdn Bhd managing director Ho Chin Soon advised caution.

“I would not ask people to jump in the market just yet. What is the rush? Look around and wait a little longer,” he said. Ho also said that there was no evidence of a property bubble in Malaysia.

Average property prices in major urban areas of Kuala Lumpur, Penang, Selangor and Johor had not seen a sudden surge that indicated a bubble, he noted.

“In fact, Johor has even seen prices weaken (over the past four years). If it were a bubble, there should be a lot of cheap land to buy now, but there is none,” Ho said.

By The Star

SP Setia 1Q net profit at RM31.17m

KUALA LUMPUR: SP Setia Bhd posted net profit of RM31.17 million in the first quarter ended Jan 31 (1QFY09), which was 35% lower than the RM48.52 million a year ago where there was an inclusion of RM26 million from land sale.

It said on March 19 that revenue fell 14.4% to RM259.92 million from RM303.65 million. Earnings per share was 3.07 sen compared with 4.81 sen.

“The group’s profit and revenue were mainly derived from its property development activities carried out in the Klang Valley, Johor Bahru and Penang,” it said.

Ongoing projects which contributed to the Group’s profit and revenue include Setia Alam and Setia Eco-Park at Shah Alam, SetiaHills at Bukit Indah Ampang, Bukit Indah, Setia Indah, Setia Tropika and Setia Eco Gardens in Johor Bahru and Setia Pearl Island in Penang.

On the lower earnings in 1QFY09, it said this was mainly due to the inclusion of profit from the disposal of land in Ulu Kelang Aeon Co. (M) Bhd for RM26 million in 1QFY08.

SP Setia also said the lower profit before tax of RM44.5 million for 1QFY09 was RM58 million lower than the 4QFY08 ended Oct 31, 2008.
This is mainly due to the profit recognition of RM26.9 million on the disposal of the 25.07% interest held in Loh & Loh Corporation Berhad in the preceding quarter and lower profit contribution from property development due to the global financial crisis which negatively impacted sentiments beginning from September 2008 last year.

“Property development segmental margins are also lower at 15.7% this quarter compared to 17.9% in the preceding quarter,” it said.

SP Setia said this was mainly due to lower margins achieved by the initial phases of Setia Eco Gardens and several phases in other ongoing projects which were launched during 1Q and 2Q of FY2008.

“For these phases, building contracts had to be awarded at the height of the construction price increase in order to enable the 24 month delivery period to purchasers to be met,” it said.

Whilst cost pressures had to a large extent abated, the group’s profit margins in the months ahead would also be impacted by the structural shift in its product mix.

“This is because integrated commercial and high rise development projects such as the Setia Walk project typically carry lower margins as compared to landed residential properties. However, due to the much higher density of such projects, the overall yield per acre of land should nevertheless be better,” it said.

By The EDGE Malaysia (by Joe Chin)

Quill Capita falls 9.4% on downgrade

KUALA LUMPUR: Quill Capita share price fell 9.4% 8.5 sen to 81.5 sen in late morning trade on March 19 after a local research house said its valuations appeared demanding relative to other Malaysian REITS in terms of yield.

At 11.32am, it was down 8.5 sen to 81.5 sen. There were 30,000 units done.

RHB Research said on Quill Capita‘s valuation appeared demanding relative to other Malaysian REITs players in terms of yield as its share price rebounded to 90 after the plunge in February.

“We believe the current price level is unsustainable in view of rising concerns on the sustainability and stability of earnings. Chief among the risks faced by the company are occupancy risk where about 25% of total net lettable area (NLA) is up for renewal in 2009;

“Secondly, potential downward pressure on rental rates in view of current economic downturn and increasing office supply. Thirdly, potential devaluation in investment properties which could lead to higher gearing ratio,” it said.

However, RHB Research said QuillCapita’s gearing ratio remained manageable at 0.37 times in 4Q08. The company had low short term debt-to-total debt ratio of 0.23 times, which suggests lower refinancing risk in the near term.

“We expect gearing to improve to 0.35 times in FY09 as we do not expect any new asset injection in the near term,” it said.

The research house said softening in office rental rates due to the current economic slowdown as well as increasing supply did not bode well for Quill Capita.

RHB Research said the company would likely face bigger challenges in achieving higher rental rates for its office buildings.

"Meanwhile, despite the challenging retail outlook in the near term, we believe the long-term lease agreements (for Plaza Mont Kiara and Tesco Hypermarket in Penang) would help to mitigate the negative impact from the slowdown in the retail sector," it said.

By The EDGE Malaysia (by Joe Chin)