Sometimes, we think developers earn a lot of money. Actually, they do. Else, please explain why so many non-developer companies are trying to go into property development? Then again, what’s a lot of money? What does it translate into when we talk about profit margin? We sell a pack of nasi lemak for RM1.50. The cost to produce it may be RM1. The gross profit margin is thus 50%! Wow.
However, what if 50% of the nasi lemak were not sold? Then, it may even mean heavy losses! So, if a business is giving us a net profit margin of 16 percent, should we start one? Just imagine if the profit margin of a manufacturer is 16 percent and 30% of the stock is unsold… Someone good in maths would immediately say, if the profit margin is 16% and 30% unsold, then the manufacturer should not manufacture lah… Read on about the latest profit numbers of a prominent developer.
Article in themalaysianreserve.com . MAH Sing Group Bhd has posted a net profit of RM211.9 million on the back of RM1.3 billion revenue for the third quarter ended on Sept 30, 2019 (3Q19). (RM211.9 billion / RM1.3 billion revenue = 16% profit margin, net.) Mah Sing said in a statement, “Revenue and profit contributions are expected to increase from these projects when construction momentum starts to pick up.”
The group added that development projects which contributed to its results include M Vertica in Cheras, Kuala Lumpur(KL); M Centura in Sentul, KL; M Aruna in Rawang, Selangor; Southville City in KL South and more. It has cash and bank balance of RM1 billion and it will continue to replenish its prime land plots with a key focus on affordable projects in Klang Valley, Johor and Penang, while exploring joint-venture prospects. Do read more about them in Article in themalaysianreserve.com
Anyway, this is the formula: Net Profit Margin = Net Income / Revenue x 100 According to corporate finance institute, “You may be asking yourself, “what is a good profit margin?” A good margin will vary considerably by industry, but as a general rule of thumb, a 10% net profit margin is considered average, a 20% margin is considered high (or “good”), and a 5% margin is low. Again, these guidelines vary widely by industry and company size, and can be impacted by a variety of other factors.” (Read more here)
Typical profit margins for food industry (restaurants for example) is usually way higher than 16%. The reason is because some of it may not be sold and food has a time limit before going bad. For developers, unsold units will be an issue because they have already built and have to pay their construction people yeah. This is why if they feel they are unable to sell enough units, they will just return the deposit money and will not start construction. Happy understanding about profit margins.
Next suggested article: Unsold higher, likely. Prices lower, unlikely. (suddenly…)