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Developers and their profit margins, recent updates, Sept 2014.

Posted in Equity / Stock, and Uncategorized

There has been many rumblings that developers earn too much. If they are willing to lower their profit margins, surely the prices can be lowered. I think I agree on some parts, especially the marketing that they do. If they continue to use traditional mediums, without any doubt that part would be ever higher. Use online effectively and the costs suddenly reduces tremendously. Black and white and one day versus unlimited videos, pictures and in colours and easily shared or forwarded? Anyway, forget about that. For today, let’s just run through announcements by listed property developers in terms of their profits versus revenue.

In a report recently, OSK Property Holdings was a darling of some research houses. One of the reason is because its profits are expected to record a new high for the property developer. It’s outstanding performance was due to the advanced construction progress for projects such as Mirage by the Lake and Pan’gaea in Cyberjaya, Mirage Residence in Kuala Lumpur, Atria SOFO Suites in Damansara Jaya, Sutera Damansara in Sungai Buloh and Bandar Puteri Jaya (BPJ) in Sungai Petani. The profit after tax and minority interest (PATAMI) was RM50.2 million versus a revenue of RM323.7 million. The net profit margin?  15.5%.

Mah Sing’s first half recorded a RM168.76 million net profit versus a revenue of RM1.35 billion. This gives it a net profit margin of 12.5%. If you ask me, I think it’s on the lower end but if you look at the net profit actual number, this is already so many times higher than that of OSK which is a mid-tier developer while Mah Sing is one of the largest in Malaysia. The improved revenue is due to the higher work progress from the groups ongoing development projects.

UEM Sunrise Bhd meanwhile recorded a net profit of RM136 million versus a revenue of RM849.2 Billion. This gives it a net profit margin of 16%. Theere was a drop versus the same period last year which included a strategic sale of 17.6 ha in Puteri Harbour worth RM400.7 million. The revenue was largely contributed by the following projects in Nusajaya namely East Ledang, Imperia, Nusa Bayu and Nusa Idaman as well as those in the Klang Valley, specifically Summer Suites and Symphony Hills.

Tropicana’s first six months net profits was RM97.2 million while revenue was RM655 million. Net profit margin of 14.8%. This was a higher number than the same period of last year and it said that the property market in Malaysia is subdued because of the many cooling measures by the government. However it expects to continue to be able to tap into its sizeable and strategic land banks especially in Klang Valley and thus its performance is likely to be satisfactory in 2014. New launches include terrace homes in Tropicana Heights, Kajang, and the third serviced apartment block in Tropicana Gardens, a mixed residential development located in Kota Damansara with proximity to the Dataran Sunway MRT station.

We have now learnt that most of the recent announcements showed a double digit net profit margins but none of them hit over 20%. With the slowing market, new launches may be priced more affordably and I think perhaps we can see the effects moving forward. I think double digits are still considered very healthy. There are developers in markets outside Malaysia which are already having just a single digit net profit margins. Happy reading.

written on 10 Sept 2014

Next suggested article: Property prices and developer’s profit margin

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2 Comments

  1. S B Lim
    S B Lim

    I never realise the developer are making so little. The profit margin is for the entire duration of the project hence if breakdown to yearly profit then it is lesser correct?
    Should concentrate in the secondary problematic property where the price is much below market value.

    September 11, 2014
    |Reply

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