Published May 14, 2007

Property groups post sharp profit jumps

More gains to be had from upcoming residential property launches, reports ARTHUR SIM


FIRST quarter results for listed property companies are mostly in, with several posting a huge increase in profits.



The Coast: Recognition of income from this project was a major contributor to Ho Bee's turnover of $242.9 million






Top of the list is CapitaLand with earnings of $608.1 million, a huge 369.4 per cent higher than a year earlier. Taking advantage of the dramatic upswing in the office space sector, it sold Temasek Tower to chalk up a fair-value gain of $472.9 million. It also registered a portfolio gain of $130.5 million, partly from the sale of office space in Samsung Hub.

CapitaLand's residential business unit's first-quarter earnings before interest and taxes (Ebit) increased 80.6 per cent from $67.1 million to $121.2 million year-on-year, attributed to higher profits from Singapore operations.

City Developments Ltd, Singapore's other property major, will announce its results soon and analysts expect a strong performance. Kim Eng's Wilson Liew expects a net profit of about $100 million, also on the back of the strong office space sector. 'Income is likely to come from the sale of remaining units in previously launched residential projects and rental income from office space like Republic Plaza, which is asking about $15 psf per month now,' he said.

News that options to buy units at One Shenton condominium were returned is not a bad sign for the company, Mr Liew said. 'One Shenton was launched before the new benchmark by Orchard Residences was set. This means it could relaunch the units returned at a higher price now.'

Ho Bee Investment reported some of the most impressive Q1 numbers with a year-on-year increase of 484.8 per cent. Profit climbed to a record $76.5 million, from just $13.1 million a year earlier.

The group's property development activities registered a turnover of $242.9 million - up 381 per cent over the corresponding period last year. Recognition of income from the sale of its 249-unit The Coast at Sentosa Cove project was a major contributor. The Coast was launched at an average price of around $1,500-$1,600 psf in October last year.

UOB Kay Hian analysts point out that Ho Bee is the biggest developer on Sentosa and still has Waterfront Collection and Seaview Collection at Sentosa Cove to launch. In a note released on May 8, UOB Kay Hian said that net profit for Q1 2007 was 31.5 per cent of its full-year 2007 forecast and slightly above expectation due to earlier recognition of profit. UOB Kay Hian has since revised its FY07 earnings forecast for Ho Bee to $267.9 million. 'We continue to like the stock for its strong positioning in Sentosa as well as its astute management,' the broking house said. 'We reiterate 'buy' with a target price of $3.00 based on 10 per cent premium to our RNAV (revalued net asset value) estimate.'

Q1 earnings for Allgreen also increased significantly year-on-year. Net profit was up 309 per cent to $49.6 million. CIMB analysts noted that quarterly revenue of $181 million was boosted by income recognition from [email protected] and Cairnhill Residences, but said also that rental rates and occupancy at Great World City and Traders Hotel continued to improve. 'Asking rents for Great World City offices have reached $6.50 psf per month, up an estimated 12 per cent from the start of this year,' CIMB said.

Keppel Land reported a Q1 net profit of $62.5 million. But in comparison to the top gainers, the percentage change year-on-year was more 'moderate' at 71.9 per cent.

Earnings largely came from higher residential sales, with profit after tax and minority interests (Patmi) from property trading up 190 per cent to $56.5 million.

Net profit from Allgreen's Singapore business grew 162.8 per cent to $45.2 million, but profit from overseas ventures fell 9.4 per cent to $17.3 million. Overseas earnings contributed less, dropping from a 53 per cent contribution in Q1 2006 to about 26 per cent in Q1 2007.

The first phase of Keppel Land's 1,129-unit Reflections at Keppel Bay was launched in April so revenue will not have been booked yet.

Residential property launches will continue to factor big in the coming quarters, with completed new supply expected to be tight. Phillip Securities Research estimates that 2007 and 2008 will see 4,500 units and 7,600 units respectively. It believes huge supply will come into the market in 2009 and 2010 with about 16,800 units and 14,400 units completed, respectively.

Phillip Securities analyst Pang Chin Hong also notes that City Developments had the largest share of new launches in Q1 2007 at 22 per cent. Fraser and Neave Limited's property arm Frasers Centrepoint Homes had 10 per cent, while Allgreen and Ho Bee Group had 5 per cent each.

Companies with exposure to the office space sector also look set to gain, with acquisition interest expected from foreign funds. Temasek Tower was bought by Macquarie Global Property Advisors for $1.04 billion and Mr Pang expects institutional investors' interests in prime office properties to continue.