News & Articles Property developers' sales cushioned by foreign exposure
Property developers' sales cushioned by foreign exposure
8 Jul 2015
"SALES of property players with overseas ventures appear to have been less affected by the weak local operating environment, which followed cooling measures undertaken by the government and the central bank two years ago. However, not all foreign markets are the same — numbers from the last financial year show that developers with projects in the UK and Australia are coping better with the domestic slowdown.
S P Setia Bhd ( Financial Dashboard), UEM Sunrise Bhd ( Financial Dashboard) and Eastern & Oriental Bhd appear to have benefited from their overseas exposure in the two developed markets.
One of the first Malaysian property developers to go abroad, S P Setia (fundamental: 1.4; valuation: 1.4) ventured into Vietnam in 2007, and then to Australia, Singapore and the UK. It is now starting to enjoy the fruits of its labours.
During the financial year ended Oct 31, 2014 (FY2014), RM1.8 billion or 40% of S P Setia’s sales came from its international endeavours, a result that the company said has vindicated its decision to go abroad early. In particular, its 40% share in the Battersea Power Station project contributed the most to sales at RM1.2 billion, followed by projects in Melbourne and Singapore.
The developer expects international contribution to account for 40% of its ambitious RM4.6 billion sales target for FY2015. The bulk of it is expected to come from Battersea Phase 3A, which has an estimated gross development value (GDV) of RM1.5 billion.
For the first quarter ended Jan 31, 2015, Battersea contributed RM737 million to the RM1 billion sales achieved by S P Setia during the period. Even then, sales for the quarter were 37% lower year on year — the result of limited launches in Malaysia. Total launches decreased 67% in the three-month period compared with a year ago.
UEM Sunrise (fundamental: 1.5; valuation: 2.6) also benefited from its decision to diversify abroad.
During the financial year ended Dec 31, 2014, a single development in Australia spared the traditionally strong performer from missing its sales target — Aurora Melbourne Central contributed 61% to the company’s total sales of RM2.4 billion that year.
CEO Anwar Syahrin expects UEM Sunrise’s overseas ventures to cushion the company against any downside in earnings seen in its local properties. Aurora Melbourne Central alone, he says, has the potential to bolster the company’s earnings for the next three to five years.
The contribution from Australia is noteworthy because only 0.2% of the company’s total landbank of 14,600 acre is located outside Malaysia. Equally important is the fact that UEM Sunrise is Iskandar Malaysia’s master developer and 77% of its landbank is in Johor.
The developer expects 48% of sales this year to come from its Australian projects — the retail, commercial and serviced apartment components of Aurora Melbourne Central with a GDV of A$180 million (RM521.2 million) and The Conservatory, with a GDV of A$200.6 million.
Already, Aurora Melbourne Central has contributed RM251 million to UEM Sunrise’s total sales of RM390 million for the first quarter ended March 31, 2015 — keeping it on track for its RM2 billion target.
“If you look at E&O, which has some projects in the UK, it (overseas sales) helped in the last quarter. Overseas sales represented a quarter of the sales numbers, even though the projects are not as substantial,” says Terrence Wong, head of research at CIMB Research.
E&O (fundamental: 1.3; valuation: 1.4) achieved sales of RM940 million during the financial year ended March 31, 2015, after new sales surged by RM468 million during the fourth quarter. The jump in the final quarter was mainly due to the sale of a shophouse worth RM33 million and contract sales of 20 apartments in Princes House London.
The company is now trying to cement its international presence, particularly in the UK. Its subsidiary, Eastern & Oriental Property (UK) Ltd, plans to list on the London Stock Exchange. It also acquired a third property in London — a 1.2-acre freehold site in Hammersmith — for RM308.9 million.
“It doesn’t hurt to have developments overseas, ready to be launched in markets that are strong. It helps sales but ultimately, the difference it makes depends on the individual companies and the market they are exposed to. Australia and the UK are strong property markets,” says Wong.
“But I won’t say the same about all markets. Also, developers make do with what they have. If they only have projects in Malaysia, then they will have to make it work and adapt by shifting their product mix and selling what the market demands.”
It is noteworthy that there are several developers that have held up well over the last year in the soft local market without relying on developments abroad.
A bank-backed analyst says, “It makes sense for developers to go abroad when they cannot sell locally. But if you look at some of the companies that easily achieved sales last year, even in markets such as Iskandar, they will not be rushing overseas. You have to sell what people want to buy.”
Mah Sing Group Bhd ( Financial Dashboard) (fundamental: 2.8; valuation: 2.4), a pure local property play, registered RM3.43 billion in sales during the financial year ended Dec 31, 2014 (FY2014), derived from projects in the Klang Valley and Johor. The sales figure fell short of the company’s target of RM3.6 million, but still ranked among the highest in the industry.
The developer attributes the success to targeting the Klang Valley and pricing its products below RM1 million. Its strategy of reaching out to the mid-range mass market will be maintained to achieve its sales target of RM3.4 billion for FY2015.
Already, 84% of the group’s residential property launches are priced below RM1 million and the Klang Valley is expected to contribute more than 67% to this year’s sales. In 1QFY2015, Mah Sing reported sales of RM561 million, 27% lower than the previous corresponding period.
Its peer, Eco World Development Group Bhd (EcoWorld), also saw resilient sales for the financial year ended Oct 31, 2014 (FY2014). It registered sales of RM3.2 billion, thanks to bullish marketing strategies and innovative promotions. Furthermore, for all that have been said about the Johor market in FY2014, EcoWorld (fundamental: 0.5; valuation: 1) reached annualised sales of RM1.8 billion in the state.
The southern state, where the developer offers mainly landed residential properties, was the group’s major sales driver in FY2014. In the first quarter ended Jan 31, 2015, when EcoWorld had no new launches, it still achieved sales of RM439 million from projects in the Klang Valley and Iskandar."
S P Setia Bhd ( Financial Dashboard), UEM Sunrise Bhd ( Financial Dashboard) and Eastern & Oriental Bhd appear to have benefited from their overseas exposure in the two developed markets.
One of the first Malaysian property developers to go abroad, S P Setia (fundamental: 1.4; valuation: 1.4) ventured into Vietnam in 2007, and then to Australia, Singapore and the UK. It is now starting to enjoy the fruits of its labours.
During the financial year ended Oct 31, 2014 (FY2014), RM1.8 billion or 40% of S P Setia’s sales came from its international endeavours, a result that the company said has vindicated its decision to go abroad early. In particular, its 40% share in the Battersea Power Station project contributed the most to sales at RM1.2 billion, followed by projects in Melbourne and Singapore.
The developer expects international contribution to account for 40% of its ambitious RM4.6 billion sales target for FY2015. The bulk of it is expected to come from Battersea Phase 3A, which has an estimated gross development value (GDV) of RM1.5 billion.
For the first quarter ended Jan 31, 2015, Battersea contributed RM737 million to the RM1 billion sales achieved by S P Setia during the period. Even then, sales for the quarter were 37% lower year on year — the result of limited launches in Malaysia. Total launches decreased 67% in the three-month period compared with a year ago.
UEM Sunrise (fundamental: 1.5; valuation: 2.6) also benefited from its decision to diversify abroad.
During the financial year ended Dec 31, 2014, a single development in Australia spared the traditionally strong performer from missing its sales target — Aurora Melbourne Central contributed 61% to the company’s total sales of RM2.4 billion that year.
CEO Anwar Syahrin expects UEM Sunrise’s overseas ventures to cushion the company against any downside in earnings seen in its local properties. Aurora Melbourne Central alone, he says, has the potential to bolster the company’s earnings for the next three to five years.
The contribution from Australia is noteworthy because only 0.2% of the company’s total landbank of 14,600 acre is located outside Malaysia. Equally important is the fact that UEM Sunrise is Iskandar Malaysia’s master developer and 77% of its landbank is in Johor.
The developer expects 48% of sales this year to come from its Australian projects — the retail, commercial and serviced apartment components of Aurora Melbourne Central with a GDV of A$180 million (RM521.2 million) and The Conservatory, with a GDV of A$200.6 million.
Already, Aurora Melbourne Central has contributed RM251 million to UEM Sunrise’s total sales of RM390 million for the first quarter ended March 31, 2015 — keeping it on track for its RM2 billion target.
“If you look at E&O, which has some projects in the UK, it (overseas sales) helped in the last quarter. Overseas sales represented a quarter of the sales numbers, even though the projects are not as substantial,” says Terrence Wong, head of research at CIMB Research.
E&O (fundamental: 1.3; valuation: 1.4) achieved sales of RM940 million during the financial year ended March 31, 2015, after new sales surged by RM468 million during the fourth quarter. The jump in the final quarter was mainly due to the sale of a shophouse worth RM33 million and contract sales of 20 apartments in Princes House London.
The company is now trying to cement its international presence, particularly in the UK. Its subsidiary, Eastern & Oriental Property (UK) Ltd, plans to list on the London Stock Exchange. It also acquired a third property in London — a 1.2-acre freehold site in Hammersmith — for RM308.9 million.
“It doesn’t hurt to have developments overseas, ready to be launched in markets that are strong. It helps sales but ultimately, the difference it makes depends on the individual companies and the market they are exposed to. Australia and the UK are strong property markets,” says Wong.
“But I won’t say the same about all markets. Also, developers make do with what they have. If they only have projects in Malaysia, then they will have to make it work and adapt by shifting their product mix and selling what the market demands.”
It is noteworthy that there are several developers that have held up well over the last year in the soft local market without relying on developments abroad.
A bank-backed analyst says, “It makes sense for developers to go abroad when they cannot sell locally. But if you look at some of the companies that easily achieved sales last year, even in markets such as Iskandar, they will not be rushing overseas. You have to sell what people want to buy.”
Mah Sing Group Bhd ( Financial Dashboard) (fundamental: 2.8; valuation: 2.4), a pure local property play, registered RM3.43 billion in sales during the financial year ended Dec 31, 2014 (FY2014), derived from projects in the Klang Valley and Johor. The sales figure fell short of the company’s target of RM3.6 million, but still ranked among the highest in the industry.
The developer attributes the success to targeting the Klang Valley and pricing its products below RM1 million. Its strategy of reaching out to the mid-range mass market will be maintained to achieve its sales target of RM3.4 billion for FY2015.
Already, 84% of the group’s residential property launches are priced below RM1 million and the Klang Valley is expected to contribute more than 67% to this year’s sales. In 1QFY2015, Mah Sing reported sales of RM561 million, 27% lower than the previous corresponding period.
Its peer, Eco World Development Group Bhd (EcoWorld), also saw resilient sales for the financial year ended Oct 31, 2014 (FY2014). It registered sales of RM3.2 billion, thanks to bullish marketing strategies and innovative promotions. Furthermore, for all that have been said about the Johor market in FY2014, EcoWorld (fundamental: 0.5; valuation: 1) reached annualised sales of RM1.8 billion in the state.
The southern state, where the developer offers mainly landed residential properties, was the group’s major sales driver in FY2014. In the first quarter ended Jan 31, 2015, when EcoWorld had no new launches, it still achieved sales of RM439 million from projects in the Klang Valley and Iskandar."
Source: The Edge Markets