Sim Lian

S&P on 14 Feb 2012


Results Review
SLG’s 1HFY12 (Jun) net profit of SGD137.8 mln (+118.2% YoY) was better than expected as it reached 97% of our previous full year estimate. Revenue of SGD391.2 mln (+45.8% YoY), however, was in line with expectations.


The better-than-expected 1HFY12 earnings were mainly due to stronger EBIT margin of 43.2% (vs. 27.4% in 1HFY11) following the completion of the UB. One industrial park project in 1QFY12. We believe that the UB. One project generated an above average margin, on a relatively low land acquisition price of approximately SGD85 psf ppr in 2008. Sales of the UB. One project has also been encouraging, with over 75% of the 196 factory units and 83 warehouses sold at an average price of SGD550 psf. The project received its TOP in 1QFY12.


In 2QFY12, SLG’s revenue fell 20.6% YoY with revenue from its property division falling 24.6% YoY and 64.3% QoQ following completion of the UB. One project in 1QFY12. Construction revenue also slipped 13.8% YoY to SGD39.2 mln on fewer ongoing projects and new building projects at the early stages of construction. Meanwhile, SLG’s 2QFY12 EBIT fell 30.3% YoY and its EBIT margin slipped to 33.5% (vs. 38.1% in 2QFY11). Its 50%-JV A Treasure Trove project generated a maiden net profit of SGD998,000 in 2QFY12.


2HFY12 earnings recognition is expected to be weaker vs. 1HFY12, as SLG reverts to its lower-margin residential developments, offset slightly by increased contribution from the A Treasure Trove JV.


Earnings Outlook / Estimates Revision
SLG’s earnings will continue to be anchored by its various ongoing property development projects in Singapore and Malaysia. Recent launches, namely; A Treasure Trove (a 50:50 JV in Ponggol with its controlling shareholder, Sim Lian Holdings Pte. Ltd.) and Parc Vera (in Hougang), received strong response, with over 80% of the units on offer taken up. Sales of the newly launched Trilliant executive condominium project in Tampines, however, are slower, but we expect sales to pick up due to the project’s strategic location and the release of more units. Construction earnings, meanwhile, will continue to taper due to its small external orderbook, but in-house jobs will keep its construction arm busy over the next few years.


We lift our FY12 and FY13 net profit estimates to SGD159.2 mln (from SGD142.8 mln) and SGD118.3 mln (from SGD113.2 mln) respectively after fine-tuning some of our margin assumptions on the UB. One project as well as on its ongoing projects. Our forecast, however, excludes the Trilliant project as earnings of the project will only be recognized upon its completion in November 2015.


Investment Risks
A downturn in the property market both in Singapore and Malaysia could affect the sales of its properties. Also, landbank replenishment remains a constant challenge with the increasingly competitive and high land prices. Its margins could also be affected by higher building material costs.