A Strong Balance Sheet Might Not Be Enough for Bukit Sembawang Estates’ Investors

Bukit Sembawang Estates (SGX: B61) is a mid-sized residential property developer and investment holding company with a market capitalisation of S$1.57 billion.

It has one plus-point going for it: The company might be one of just a handful of publicly-listed real estate developers that are able to operate without any borrowings; at last count, the company had cash holdings of more than S$200 million without any debt.

But, that advantage that the company has over other developers might not be enough for investors. To see why that’s so, we can look back at Bukit Sembawang Esates’ latest full-year earnings that was released on Tuesday.

The company’s earnings

For the year ended 1 April 2014, the company achieved revenue of S$408 million. That is an increase of 15.1% from a year ago.

However, due to a higher cost of sales, its gross profit only increased by 8.3% to S$159.6 million. The company had also faced much higher operating expenses for the year. This is mainly due to a provision of a possible loss of S$17.5 million on its Paterson Collection residential development project as a result of property-demand that came in much lower than expected.

All told, the company recorded a net profit of S$111.3 million, which is 3% lower than a year before.

A strong balance sheet isn’t enough

On the balance sheet side, the company has one of the strongest balance sheets of any property developer I have ever seen. It has no debt and a cash balance of S$204.8 million, as referenced earlier. With assets of US$1.12 billion worth of properties under development on its balance sheet as well, it seems that the company has very little balance sheet risks.

But, there’s a slowdown in Singapore’s residential property market and that’s manifested itself partly in the company’s provision of losses for its Paterson Collection project. As Bukit Sembawang Estate’s main focus is on Singapore’s residential property market, there might be little growth left for investors looking at this company despite its ostensibly healthy balance sheet.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.