Wednesday, May 16, 2012

No wow factor from property in Q1



Business Times: Tue, May 15
PROPERTY players offered no jolly jack-in-the-box surprises during the Q1 reporting season, as earnings growth from industry players turned out more or less in line with what analysts had anticipated - negative.

So far, the majority of property counters have posted a double-digit percentage decline in their earnings for the period, with some such as SC Global Developments plunging from a profitable $72.8 million for Q1 last year to a loss of $10.0 million for the first three months of 2012 on the back of lower sales and higher expenses.

However, most analysts and developers have pointed out that weaker development revenues and declining margins in a number of players - including SC Global - stemmed from the sector's adoption of IFRS 115, which clarified the accounting recognition of revenue and costs of pre-completed properties, as opposed to a decline in their core performance, soothing the impact of the otherwise lacklustre results.

That aside, companies such as CapitaMalls Asia (CMA) were still deemed to have not met the mark this season, according to some analysts.

Highlighting that the street has probably "baked in overly optimistic assumptions" for CMA's FY12 earnings, OCBC analyst Eli Lee commented: "CapitaMalls Asia reported 1Q12 Patmi (profit after tax and minority interests) of $66.8 million, up 36.1 per cent year on year mainly due to revaluation gains of $30.7 million on three Japanese malls."

However, after excluding these gains, Mr Lee pointed out that CMA's quarterly results failed to impress, due to a spike in its operating expenses and a slower-than-expected ramp-up at its new malls.

But not all the eggs from the same basket are necessarily bad, note analysts, as three concur that other players such as UOL continue to look relatively compelling from a valuation standpoint.

For one, Donald Chua, property analyst at CIMB Research, continues to remain positive on UOL despite its sharp fall in net profit for the quarter.

Sharing his view on the property developer, Mr Chua said: "(UOL's) lower development revenues in 1Q12 were expected on the completion of several projects in 2011... What came in strongly were property investment rents (up 7 per cent year on year) and hotel revenues (up 22 per cent year on year). In particular, hotels in Singapore, Australia, Malaysia and Yangon saw growth, including revenue streams from the Parkroyal Melbourne Airport hotel acquired in April 2011."

Mr Chua added that positive rental reversions this year could also give an added spin to the group as a "fair bit" of UOL's renewals in Novena and United Square are approaching soon.

Likewise, Adrian Chua from UBS Investment Research is also bullish on UOL and sees the opportunistic deployment of capital by the group in subsequent periods as one of its key catalysts going forward.

Yesterday, Wheelock Properties also unveiled its quarterly performance, which unfortunately showed less-than-impressive numbers with earnings dropping a whopping 75 per cent from last year to $13.1 million as at end March 2012.

Notably, the softer net profit came on the back of a weaker topline of $26.1 million (down 75 per cent) following the completion of Scotts Square in Q3 last year and fewer units sold in developments such as Scotts Square and Orchard View during the period.

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