http://www.straitstimes.com/archive/...-ocbc-20140204

Developers' profit spikes may be due to accounting standard: OCBC

Published on Feb 04, 2014

By Melissa Tan


INVESTORS take note: An accounting standard can make a huge difference to a developer's bottom line.

The standard says developers can book profits from certain types of projects only upon completion of those projects - not profits racked up progressively.

Because of it, some second-liner property stocks could see earning spikes when they report their upcoming quarterly results, said OCBC Investment Research in a note yesterday.

It singled out developer Roxy-Pacific Holdings and construction firm Lian Beng Group for likely sharp net profit boosts.

Roxy-Pacific's and Lian Beng's predicted gains echo that of property developer Oxley Holdings last year.

Oxley's profit for the three months to Sept 30 last year skyrocketed to a record $250.8 million from just $6.6 million the year before.

That gave a fillip to Oxley's share price, sending it up by as much as 40 per cent after the results were announced.

The amount "almost matched the combined earnings of CapitaLand and City Developments, the two largest domestic developers, over that quarter", OCBC said.

It explained that Oxley could post such a stunning surge because of the completion of its huge industrial development Oxley Bizhub last year.

The 728-unit Oxley Bizhub got its temporary occupation permit (TOP) during the July to September period and had all of its profits booked in that quarter.

Booking profits all at once upon completion is known as the "completion of contract" profit recognition method. It is required for commercial, industrial and overseas projects, OCBC said.

It differs from the "progressive profit recognition" accounting method usually used for domestic residential projects, where profits from a project are split up and recognised over a period of time.

OCBC said Roxy-Pacific and Lian Beng could see similar profit spikes ahead owing to the "completion of contract" method.

Roxy-Pacific's completion of a mixed retail and office project at Changi called Wis@Changi could add $19.5 million to its earnings for the quarter ended Dec 31, OCBC said.

This forecast is based on an estimated selling price of $1,890 psf and a net saleable area of 40,716 sq ft. The gross floor area is 50,895 sq ft.

Wis@Changi has 23 shops and 60 office units and is fully sold. Roxy-Pacific bought the site at 116, Changi Road, for $35.5 million in late 2010.

Roxy is scheduled to report its fourth-quarter results on Feb 13.

Lian Beng is also likely to see net income for the three months to Feb 28 bumped up by the completion of M-Space, an industrial development at Mandai.

The 141-unit M-Space is fully sold and is set to contribute $18.3 million to Lian Beng's third-quarter earnings, OCBC said.

It is basing that on a selling price of $600 psf and a net saleable area of 171,282 sq ft. The project's industrial gross floor area is 180,297 sq ft.

Lian Beng holds a 55 per cent stake in the project and mainboard-listed dormitory operator Centurion Corporation owns the remaining 45 per cent.

Roxy-Pacific shares fell two cents to 55.5 cents and Lian Beng's counter lost half a cent to end at 52 cents yesterday.

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