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Thai Real Estate Market – Top Developers’ Profit Margins Fall Despite Strong Revenue Growth

By on Nov 26, 2013 in Property News

Top Developers' Profit Margins Fall Despite Strong Revenue Growth

Although presales and overall revenue of listed property firms showed strong growth in the first nine months of the year, their net profit margin dropped from an average of 15 per cent in September last year to 13 per cent this year, due to rising construction and management costs.

According to the financial results of top 10 listed developers for the period from January to September, overall revenue grew by an average of 20 per cent year on year, while net profit expanded by 10 per cent.

Only four leading property firms – Land & Houses, Supalai, Quality Houses and LPN Development – posted net profit margins of more than 15 per cent.

Land & Houses’s net margin came in at 24.4 per cent, because the company’s business structure covers both residences for sale and investment in related business such as retail and banking. This has enabled it to achieve a higher net profit margin than its peers.

Supalai, Quality Houses and LPN Development posted net profit margins of 18.69 per cent, 16.7 per cent and 16.55 per cent, respectively, thanks to condominiums in projects launched in 2011 and 2012 that are being transferred to customers this year – and the developers therefore benefiting from lower construction and marketing costs.

Meanwhile, Pruksa Real Estate had a net profit margin of 13.88 per cent, although the company recorded overall revenue of Bt25 billion in the first nine months – the highest in the sector.

SC Asset Corp recorded a net profit margin of 11.15 per cent, while AP (Thailand) posted 9.09 per cent and Sansiri – ranked second among listed property firms in terms of overall revenue, at Bt20 billion in the first nine months – had a margin of only 4.4 per cent.

The generally lower net profit margins among the main listed developers are attributed to rising construction and management costs.

Terdsak Thaweethiratham, senior vice president of Asia Plus Securities, said the top 15 listed property firms had reported combined revenue of Bt192 billion for the first nine months, up 20 per cent from the same period last year. However, when broken down quarter by quarter, revenue fell over the nine-month period.

The 15 developers recorded revenue of about Bt75 billion in the first quarter, some Bt65 billion in the second and around Bt55 billion in the third.

This slowdown in demand boosted their inventory, which when combining undeveloped land, residential work under construction and completed homes waiting to be sold, was between 15 and 20 per cent higher at the end of September than on December 31 last year.

Meanwhile, the top 15 developers have an overall backlog of high- and low-rise units already booked and under construction worth Bt270 billion, he said.

Some 87 per cent of the total comprises condominiums worth Bt240 billion, while the remainder is mainly for detached housing and townhouses.

Terdsak said that although the high backlog would result in future income, there was also a business risk that when construction was complete, some customers could decline to have their booked units delivered if the economic situation were to worsen.

If such a practice were to become widespread, it would result in a debt burden for property firms and negatively affect their liquidity in the longer term, he warned.

According to research by Asia Plus Securities, about 20 per cent of the condominium backlog worth Bt240 billion is for units booked by speculators, who may decline to have a property transferred when a project is completed if in the meantime the economic slowdown has worsened.

If the property firms faced a high rejection rate, it would impact directly on their financial results in the long term – and at a time when their debt-to-equity ratios were rising.

Terdsak said the debt-to-equity ratio of developers calculated on their interest debt had increased from 1.1:1 last year to 1.7:1 on average as of September 30.

Some companies had a debt-to-equity ratio of more than 2:1.

Demand slowdown
Meanwhile, Fitch Ratings said Thai property developers faced the risk of slowing growth as an expected decrease in purchasing power is likely to suppress housing demand.

Banks have become stricter on lending to individuals, as household debt had risen to almost 80 per cent of gross domestic product at end-June. This could increase the rejection rate as well as delay the purchasing decisions of new customers, Fitch said.

For the full article, please visit http://bit.ly/1dl5hf7

Source | The Nation 22 November 2013

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