SHL banks on build and sell with success
30/06/2007 The Star By Tee Lin Say
TO build and then sell can surely mean only one thing. You need to have
cash. For township specialist SHL Consolidated Bhd, this concept is nothing
new but a practice it has employed since inception.
The build-and-sell concept, while it may be capital intensive, actually has
its merits. For one, it can command premium pricing as homebuyers are more
assured of timely delivery.
Similarly, SHL generally launches its property projects once it is 70%
completed. Some of the products are even marketed after completion,
resulting in limited supply thus better-than-average profit margins.
Yap: We will continue buying small pockets of land in our township
developments
At times of downturn, the properties can be priced lower, although at some
margin sacrifice, but this will sustain demand and vice versa during an
upswing.
“In those days, people don't believe you. They want to see the house first
before paying money. So we started by building single storey houses,” says
its executive director Datuk Yap Teiong Choon.
SHL is further able to control its cost as it has substantial control over
its construction and raw materials through its own construction, bricks
manufacturing and quarrying divisions.
The low holding costs and high gross development value (GDV) of the group’s
land bank helps cushion any unexpected downturns.
“Property development is a game for the big boys. It is easy to buy land,
but it is not easy to complete the project. Malaysia's properties are one of
the cheapest in the world. I don't think Malaysian homebuyers lose out, if
they were to compare themselves with the rest of the world,” says Yap.
A Steady Business
Most homebuyers perhaps recognise SHL for its redbrick housing design, apart
from its concept of resort living. SHL has more than 40 years experience in
broad-based residential commercial, civil and infrastructure development and
construction activities.
Listed in 1995, the group is relatively low profile, but has built
credibility since its days with See Hoy Chan Sdn Bhd, the esteemed developer
of Bandar Utama homes.
SHL has two main developments, which are its flagship development in Shah
Alam as well as its other project in Bandar Sungai Long.
All of SHL's developments and landbanks are centred in Klang Valley.
Today the group has an estimated GDV of over RM1.9bil, with its land banks
located mainly in the Klang Valley (Bandar Sungai Long, Serdang, Kajang,
Shah Alam, Sungai Choh and Rasah) with total outstanding landbank of over
900 acres of which 709 acres have been earmarked for developments. This is
enough to sustain the company for the next 10 years.
Bandar Sungai Long is a self-contained township completed with supporting
infrastructure and amenities. It borders the Kajang town and Cheras and
Sungai Besi with good accessibility via SILK, South Klang Valley Expressway
and Grand Saga Expressway. Of late, the area is getting more attention with
the existence of UTAR.
“We reckon the “UTAR-factor” to give the population within the locality a
big boost. Apart from imminent increase in economic and social activities,
rental yield is expected to rise as well. As such, values for both the
commercial and residential properties in the township have increase
accordingly,” says OSK Investment Research.
While the Shah Alam development is catered more for the Malay market, 90% of
homebuyers in Sungai Long are Chinese. Does Yap see population in these
areas growing?
“The population in the Klang Valley is growing fast. With prime areas like
Bandar Utama, Damansara Jaya, Petaling Jaya and Mont Kiara becoming
increasingly expensive, people will move to more affordable areas. In Sungai
Long, our house prices have almost appreciated quite substantially,” he
says.
He adds: “We will continue buying small pockets of land in our township
developments. We capitalise on the entire infrastructure that we have built
earlier. The facilities in our townships are quite complete.”
“I would say that we are the leader in price setting. On a build up per
square feet basis, we are one of the cheapest in Malaysia,” says Yap.
Over the next three years, the group is expecting to capitalise on the
potential from Bandar Sungai Long’s and Shah Alam’s mature infrastructure.
Its other remaining earmarked developments with an estimated GDV of over
RM1.1bil will be launched in 2009 or 2010 onwards.
These new developments are in Taman Universiti Indah, Kajang, Rasa, Sungai
Choh and Kuala Pilah. For an international flavour to the group, SHL also
has a strategic partnership with the Japanese Marubeni Group.
Build Then Sell (BTS)
The 10:90 BTS system, allows buyers to pay 10% of the house price first,
while the remaining sum is paid upon the issuance of the Certificate of
Fitness for Occupation (CFO) for the property.
For developers who use the BTS model, a fast-track approval of four months
will be granted. This will involve approvals for change in land use, sub
division, planning and the submission of the building plan.
Developers will also be exempted from paying the RM200,000 deposit fee for
the housing development license and will be exempted from the low-cost homes
construction quota, which will be a great relief to many developers.
SHL is one of the few developers that could see an earnings surge in the
adoption of the BTS strategy, hence enabling it to immediately tap on the
incentives set up by the Government lately.
Analysts see the removal of the 30% low cost housing development quota as
the most attractive feature for SHL. Yap says that SHL will be converting
its land reserved for low cost housing to normal property development.
“This will immediately enable SHL to yield higher margin for its future
developments, hence boosting its earnings performance going forward. The
minimal number of low-cost houses in its development townships could boost
the market value of its landbank further,” says OSK Investment Research.
Quarterly earnings
For its year ended March 2007, revenue dropped 14.37% to RM155.61mil while
net profit jumped 36.69% to RM16.52mil. These results were within
expectations.
OSK says that the profitable but lumpy performance was primarily due to the
adoption of the BTS strategy, where properties will not be sold or launched
unless they are completed.
Of the approximately RM117mil GDV worth of terrace houses and shop houses
launched recently, about 65% have been taken up of which earnings will be
recognised over in FY08.
The kicker in its earnings is supposed to happen in this financial year. OSK
is forecasting net profit to jump 114.54% to RM35.4mil. This jumps is
basically due to its build and sell concept. This financial year will see
three property launches taking place, thus the cash rolling in.
SHL's shares are backed by a revised net asset value of RM4.44. Based on its
share price of RM1.87, the stock is trading at a 57% discount. Meanwhile,
OSK has a 12-month target price of RM2.20. |
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