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Property market is so-so? A developer just announced a 6 times higher net profit.

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A friend asked recently why developers continue to build if they have not yet fully sold their projects? One reason is because they have to be responsible to the buyers who have decided to buy and they need to complete the home within 36 months from the Sale and Purchase Agreement (SPA) date.

Second reason may be due to the fact that some of these developers are cash-rich companies and could afford to complete the projects and then to continue selling the units. There are many such examples today, especially developers who continue to generate huge cash flows from their non property development business.

Third reason is maybe they know that they could finish selling as they continue building. Some buyers are only confident to buy when they see the project is about to complete versus one whole piece of empty land without any construction activities. Strange but true, many people are worried that what they buy may not happen… Well, there’s one developer which has just reported a quarterly net profit which was 6.3 times higher than its previous corresponding quarter.

Article in thesundaily.my Eco World Development Group posted a net profit of RM81.5 million for its fourth quarter ended Oct 31 2019. This is 6.3 times higher than the net profit of RM12.8 million recorded in the previous corresponding quarter. The revenue is 96.5% higher at RM906.5 million versus RM461.4 million last year.

In a statement, the group attributed the positive performance to higher percentage of completion and higher sales secured by ongoing projects of the group’s subsidiaries such as Eco Majestic, Eco Forest, Eco Sanctuary and Eco Sky in the Klang Valley, Eco Botanic, Eco Spring, Eco Summer, Eco Business Park I, Eco Business Park II, Eco Tropics and Eco Business Park III in Iskandar Malaysia and Eco Meadows in Penang.

EcoWorld Malaysia president and CEO Datuk Chang Khim Wah said, “Team Eco World’s agility in adapting to changes in the marketplace to overcome the many challenges of the past two years has enabled us to substantially strengthen our balance sheet. This is evidenced in the growth of our net assets per share to RM1.54 and reduction in net gearing to 0.70 times.” Please do read the full Article in thesundaily.my

There are three things we could do. Perhaps we could visit some of their developments to understand why it has been selling well. Perhaps we could look at buying its shares which are publicly listed. We do need to hold yeah. Movements are not likely to be a lot after results have been announced unless there are some further announcements. Lastly, we could also use the result and compare it to other listed developers and then look at the PE ratio and then identify which ones are worth buying. By the way, we should also look at the yearly results and not just rely on one quarterly result as the benchmark too. Happy understanding.

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