Sime Darby Prop 1Q profit down on lower property development income, higher finance costs

KUALA LUMPUR (May 21): Sime Darby Property Bhd’s net profit for the first quarter ended March 31, 2020 (1QFY20) plunged 95% to RM14.15 million, from RM265.08 million a year earlier, due to a significant drop in revenue contributions from its property development and investment segments.

Earnings for the quarter were also hit by higher finance costs and higher share of losses from non-controlling interests, the group said in an exchange filing.

Earnings per share (EPS) fell to 0.2 sen from 3.9 sen.

Revenue came in 17.11% lower at RM476.74 million, from RM575.13 million for the corresponding quarter last year.

“The decline in the current quarter performance as compared to the corresponding period of last year was due to a significant decrease in contributions from core business segments, coupled with other losses and higher finance costs,’ said Sime Darby Property.

Other losses, it said, included a provision of disposal obligations of RM5 million in relation to a property disposed of in FY17, while the previous year's results were boosted by a gain on disposal of Darby Park Executive Suites in Singapore totalling RM203.4 million.

Sime Darby Property said its finance costs nearly doubled to RM12.52 million, from RM6.73 million previously, due to accounting treatment on borrowing costs.

It explained that the portion of borrowing costs, where all property development activities were temporarily suspended following the implementation of the movement control order (MCO), was required to be charged out directly to its income statement — rather than capitalised into land held for property development and property development cost and released progressively during the construction period.

Meanwhile, its non-controlling interest share of losses rose to RM12.1 million, from a profit of RM9.25 million, on the back of losses suffered by non-wholly owned subsidiaries.

The group said its property development segment recorded a profit of RM4.8 million, from RM71.8 million for the year-ago 3Q, due to a significant decrease in property sales of both high-rise and landed units after the expiry of the Home Ownership Campaign last year.

Development activities were impacted for 14 days during the MCO period. The segment’s results were also impacted by the provision for liquidated and ascertained damages due to possible delays in delivery of projects due to the MCO.

The property developer also noted that the MCO impacted the registration of new sales. It also recorded a lower gross profit margin due to minimal profit from the sale of land worth RM118.7 million in Australia’s Gold Coast, and additional sales incentives from its previously unsold inventory.

“Development projects that performed better in the current quarter as compared to the corresponding period of the previous year included Elmina West, Subang Jaya City Centre, Ara Damansara and the Nilai Utama township.

“Kota Elmina, the group’s new township for the industrial sub-segment, will commence to contribute to the group’s results once the revenue recognition criteria for industrial lots are fulfilled,” it added.

The group said its share of losses from joint ventures and associates increased to RM10.6 million, compared to share of profit of RM1.8 million for the corresponding period a year ago.

The losses were mainly due to higher share of losses from Battersea with a lower contribution from PJ Midtown. Battersea recorded a lower loss for the previous year due to sales of completed stocks, it added

On its prospects, Sime Darby Property expects the rest of the financial year to be challenging due to lower consumer purchasing power amid Covid-19.

But it remains confident in its financial position, with unbilled sales standing at RM1.5 billion in 1Q.

Its bank balances stood at RM925.5 million, while its operational cash flow was at RM120.5 million. Its gearing ratio was 0.26 times.

Sime Darby Property’s share price closed 2.26% or 1.5 sen higher at 68 sen today, valuing the group at RM4.63 billion.

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