Profit Up due to land sale, be reminded that it’s just for ONCE

These days, in some of the annual reports listed companies you read online, some claimed that they have huge profits increase. Some are even a few hundred percent increase compared to last financial year. Some said, they are unlocking value by selling the land that their factory is on. Some are plantation companies converting their lands into development projects. Most of the time, this will help their share prices to inch upwards. Let me remind everyone when they buy because of these announcements.

Profits Up.  If it is by land sale, do note that this is nothing more than once and once the land is sold, profits definitely will go up but do look for their announcement of what they would be doing with the profits. Most of the time, I have not seen much concrete plans being announced at the same time. Most likely, there are none yet. They are selling because they received a very good offer based on book value and by selling it, they would be able to shout to the world that their profits are up. Nothing bad or good but idle money does not help the company in its growth.

Non-Core Business.  Some would announce that they are going to go into property development as they have a piece of valuable land somewhere in a popular area. From the meetings with many developers in my previous company, I can safely tell you that even when they are developers, some of them have no idea about what they are talking about. Some said their prices are very attractive and refused to do much marketing and relied on their so called ‘networks’. Once the project passes 9 months and sales did not even hit 50%, they start to engage every agent they can find to sell for them. Fortunately, this is not majority but more of the newer developers who used to build smaller projects or has never built before but saw so many has done it, why not them?

Personally I always believe a company should concentrate on what it does best. The reason is because if every developer is really good, then they would not have read the market wrongly and having to cut their sales targets or even giving huge discounts or even engaging every agent under the sky to sell the projects for them. If those who are fully into property development may make mistakes, then the companies which were never property developers before would face even more higher potential for a mistake. Unless of course we come to stories like Eco World where a huge team of established people from SP Setia joined and suddenly Eco World is top 3 in terms of GDV in Malaysia currently.

written on 31 Aug 2014

Next suggested article: GST within few months, commercial properties and why GST


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