SINGAPORE (Sept 16): The property sector, together with finance, logistics and manufacturing, is the pillar of any modern economy. Scale is critical to success, and those with the financial muscle can steadily lever up to become even bigger.
Thirteen companies qualified for the property sector of the Billion Dollar Club, each with a market value above the billion-dollar treshold. The only industry sector with a higher number of qualifying companies was real estate investment trusts — with a total of 24 qualifying companies.
This year’s overall property sector winner is Yanlord Land Group, headed by executive chairman Zhong Sheng Jian. With its overall score of 55.53 points, Yanlord edged ahead of CapitaLand, Southeast Asia’s largest real estate company, which scored 54.04 points. Yanlord ranked top in the three-year profit growth category as well.
Bukit Sembawang Estates, another storied name in the industry, ranked first in the three-year shareholder returns category. Oxley Holdings came out tops for its robust three-year return on equity (ROE).
While Yanlord is listed in Singapore, most of its business activities are in China. Over the years, it has built a reputation for focusing on relatively high-end residential projects in China. It has so far been cautious about the emerging third- and fourth-tier cities, preferring instead to concentrate on prime location projects in top-tier cities such as Shanghai, Nanjing and Tianjin.
From FY2016 to FY2018 (the company has a December year-end), the three years under evaluation for this year’s BDC awards, Yanlord’s revenue was relatively stable at RMB25.7 billion ($5 billion), RMB25.6 billion and RMB24.9 billion respectively. The company’s net profit, reflecting higher margins, grew from RMB2.7 billion for FY2016 to RMB3.2 billion and RMB3.5 billion for FY2017 and FY2018 respectively.
For 2QFY2019, however, Yanlord recorded lower sales. It sold a total gross floor area of 124,769 sq m, generating revenue of RMB4.1 billion, down 57.7% y-o-y from RMB9.7 billion. Consequently, earnings in the same quarter came in at RMB865.3 million, down 41% y-o-y. The company’s earnings decline was somewhat mitigated by a much higher net margin of 32.9%, up from 20.9% in the same period a year earlier.
Still, Yanlord’s gearing level is an area of concern among analysts who track the company. As at Dec 31, 2018, the company’s net debt-to-total equity ratio was 96.8%. As at June 30, 2019, the ratio had dropped to just 65.2%. Thanks to healthy pre-sales figures, the company’s cash and cash equivalents as at June 30, 2019 increased to RMB16.94 billion, up from RMB10.3 billion as at Dec 31, 2018.
In his 2Q earnings statement, Zhong acknowledges that the outlook is not the brightest for his business. “While the weaker global economy, coupled with austerity measures introduced by the [Chinese] central government, will continue to present near-term challenges for the [Chinese] real estate sector, we nonetheless remain confident about the long-term development of the sector, which is underpinned by strong demand arising from rapid urbanisation.”
See also: Frasers Property: Narrowing the discount
Yanlord could do better in its environmental, social and governance scores, though. At 14.43 points, it is significantly behind the likes of City Developments, which leads its peers with 30 points.
Bukit Sembawang steps up launches
Few local companies can claim to be as storied as Bukit Sembawang, which has been listed since 1968 and developing properties in the city state for half a century. Its majority shareholder is Lee Rubber, which in turn is linked to the Lee family of Oversea-Chinese Banking Corp.
Bukit Sembawang was quiet for a while, but it has stepped up its launches recently.
On Aug 30, the company started previews for the next phase of its highly anticipated landed development Luxus Hills (Signature Collection). In this phase, Bukit Sembawang will launch 78 landed homes for immediate occupancy, located in the tranquil Seletar Hills Estate. Such proper-ties are increasingly rare in land-scarce Singapore and come with an equally rare 999-year leasehold. Bukit Sembawang says that, following the sale of the 78 homes, it expects to launch 39 units in a subsequent phase in 2020.
For 1QFY2019 ended June 30, Bukit Sembawang reported earnings of $22 million, down 5% y-o-y. Revenue in the same period was up 19% y-o-y to $77.7 million. As at June 30, the company’s net asset value was $5.12 a share, up slightly from $5.04 as at March 31. Over the three financial years used to calculate scores for this year’s BDC, the compound annual growth rate of Bukit Sembawang’s share price was 9.4% — beating all other developers.
Oxley’s ROE the highest
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Compared with Bukit Sembawang, Oxley Holdings is a radically different entity. Despite its relatively short history, Oxley has been a trailblazer in the local property scene. It rode the first wave of “shoebox” apartment units and popularised strata industrial and commercial projects. Now, under executive chairman Ching Chiat Kwong, Oxley has been going after increasingly large residential projects; it has also turned much of its attention to growth markets overseas as sentiment towards Singapore real estate is dampened by government cooling measures.
For the most recent quarter ended June 30, Oxley reported an 80% decline in earnings to $35.8 million, on lower project sales and higher forex costs. Revenue fell 57% y-o-y to $100.4 million.
Still, Oxley shareholders can look forward to a certain level of visibility. As at June 30, the group had a total unbilled contract value of $3.9 billion, of which $2.2 billion was attributable to the projects in Singapore. The remaining $1.7 billion would be from overseas projects. In a clear indication of how Oxley is able to make efficient use of its capital, its ROE for the three years used to measure this year’s BDC was a sector-leading 24.27%.
*For the full list, go to bdc.theedgesingapore.com
CENTURION CLUB: PROPERTY
Fragrance expands overseas, records recurring income
Despite the sluggish economy, 2018 proved to be a successful year for property developer Fragrance Group, winner in the property sector under the Centurion Club Awards.
The company’s revenue soared 64.7% y-o-y to $326.2 million, from $128.2 million in FY2017. Earnings rose 448% to $266 million. The company has attributed the increase to a one-off disposal gain of a property in Melbourne.
While it generated mainly development income in its early years, Fragrance has been actively building up its recurring income stream after achieving a certain scale. Apart from significant purchases, such as paying $380 million for the former NOL building in Singapore, Fragrance has been buying up properties overseas.
In FY2018, the company started to book full-year rental revenue contribution from commercial properties, as well as full-year hotel operations income from ibis Styles Hobart in Australia and The Imperial Hotel in the UK. The Hobart property commenced operations in July 2017, and The Imperial was acquired in February 2017.
Other investment properties in the UK such as The Crown Hotel, Lyndene Hotel, St Chads Hotel and The Townhouse Hotel remain stable sources of recurring income for the group.
In Australia, Fragrance has been actively working on development projects such as Premier Tower and NV Apartments, which were 41.5% and 78.3% respectively completed as at end-March.
In Singapore, the rental rate of its office space rose 7.4% in FY2018, compared with 0.4% in FY2017.
