Published April 28, 2009

Provision seen for Bt Sembawang

Possible allowance of $51m over Fairways: Nomura

BUKIT Sembawang Estates could make a $51 million provision for its financial year ended March 31, 2009, says Nomura Singapore Research.

This follows a profit warning from the property group on Friday last week, in which it warned that 'based on information currently available, the group is expected to report a loss for the financial year ended March 31, 2009'.

This will be due primarily to the recognition of an allowance for foreseeable losses for a development project as a result of the weakening property market, it said.

'We are cutting our FY 2009 numbers to reflect the loss but judge the company's move to write down assets to be in line with our expectation for lower asset values,' Nomura said in a report. It has previously tipped mass-market private home prices to fall 32.1 per cent and luxury home prices to fall 43.8 per cent in the current down-cycle.

Nomura said that the most likely candidate for Bukit Sembawang's write-down is its Fairways project, a freehold site in Telok Blangah which the group bought in an en-bloc transaction in May 2007 for $255.1 million, inclusive of development charge.

Nomura noted that the implied land value for Fairways of $628 per square foot per plot ratio (psf ppr) is 20 per cent lower than the $785 psf ppr that Bukit Sembawang paid. 'While the price that Bukit Sembawang paid appeared to be reasonable then, considering private homes in the Telok Blangah area were transacting at prices as high as $1,200 psf in the secondary market, it appears expensive in the current context, given secondary prices in the Telok Blangah area had retreated to $950 psf, or minus 20.8 per cent from a high of $1,200 psf, by 1H08,' Nomura said.

'We project that a provision of $51 million (20 per cent of Fairway's book value of $255.1 million) will be made this year, which will reverse our previous forecast for EPS of 16.7 cents to a loss of 21.1 cents per share in FY 2009,' it said. 'We assume for now no dividend will be paid for FY 2009 (four cents a share previously), as a result of the loss.'

Bukit Sembawang shares fell 12 cents to $2.34 yesterday.