Slower sales, absence of one-time gains cited; CityDev seen holding steady
South-east Asia's biggest property developer, CapitaLand, should report sharply lower quarterly profits as home sales slowed, and as it is unable to repeat large one-off gains recorded a year ago.
But earnings for its main rival City Developments, Singapore's No 2 developer by stock market value, are expected to hold steady as it books income from strong mass market sales during the four-year property boom. CityDev, unlike other Singapore developers, does not book revaluation gains as profit unless the property is sold.
A worsening economic outlook has led to a steep drop in home sales volumes, with some analysts predicting home prices will fall by up to 40 per cent over the next three years.
'CapitaLand and other developers are finding market conditions this year tougher than expected,' said Nomura analyst Tony Darwell, who sees the price of luxury apartments falling 32 per cent by 2010.
Analysts do not give quarterly estimates for Singapore property firms because it is hard to predict when they will book profits from their various projects.
CapitaLand is expected to post a 64 per cent drop in full-year to December 2008 earnings to S$1.02 billion from S$2.8 billion last year, according to the average of 16 analysts polled by Reuters Estimates. Its 2007 results had been boosted by US$1.1 billion in one-off revaluation gains.
'There were very substantial revaluation gains which gave the second quarter a substantial boost last year. There won't be much of that this year,' said JPMorgan analyst Chris Gee, adding that contributions from Australia and China will also be weaker.
AustraLand, 54 per cent owned by CapitaLand, reported a 79 per cent plunge in earnings this week and announced a rights issue to raise up to A$557 million.
CapitaLand has committed to subscribe to A$302 million in the issue, which could boost its stake in AustraLand to 70 per cent.
'This highlights risks of possible asset writedowns, especially developers with regional exposure . . . and further funding needs going forward, especially for CapitaLand's Reits,' said Credit Suisse analyst Tricia Song.
CapitaLand had in the past years spun off its assets into real estate investment trusts such as CapitaMall, CapitaCommercial and Ascott Residence, but there are concerns that such trusts may face financing problems due to the global credit crunch.
CityDev is expected to post a 1.8 per cent rise in full-year 2008 earnings to S$738 million, according to analysts polled by Reuters, with earnings supported by demand for its mass market residential projects launched earlier this year.
'We favour CityDev as the mass market segment is still resilient. Mass market sales are predicated on economic drivers and we're still seeing continued GDP growth in Singapore,' said DBS Vickers analyst Adrian Chua.
Keppel Land, Singapore's third-biggest property developer by market value, posted on Wednesday a 16.4 per cent fall in quarterly profit, reflecting a decline in property sales in Singapore and abroad.
CapitaLand shares have dropped around 10 per cent so far this year amid a global equity market selloff fuelled by worries about slowing economic growth and the US sub-prime mortgage crisis. CityDev shares lost about 20 per cent in the same period. -- Reuters
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