City Developments Limited’s Latest Earnings: Heading For A Weaker Year

It is no secret that the residential property market in Singapore has been lacklustre over the past few years. In fact, prices of private residential properties have fallen for eight straight quarters according to a recent report released by the Urban Redevelopment Authority (URA).

Thus, it is no surprise that City Developments Limited (SGX: C09), which is one of the largest property companies in Singapore, has seen a much weaker performance in its fiscal third-quarter earnings that was released yesterday evening. Here are the highlights.

The financial and business scoop

City Developments recorded a 38.8% year-on-year decline in revenue for the third quarter of 2015 (the company’s fiscal year coincides with the calendar year). This was mainly due to a lack of recognition of revenue from the Blossom Residences Executive Condominium (EC) project, which happened in the third-quarter of 2014.

Due to a much better gross margin, City Developments only saw a 10% year-on-year drop in its overall gross profit to S$413.4 million in the reporting quarter. But, higher administrative and other operating expenses had played a role in causing the company’s overall profit to fall 26.4% year-on-year to S$130.0 million.

On a segmental basis, the decline in revenue for the firm’s property development segment is significant. Without the aforementioned EC project in the reporting quarter, City Developments only recorded revenue of S$228.0 million for the segment; this compares with the revenue of S$750.4 million that was achieved in the third-quarter of 2014.

City Developments’ hotel operations also suffered a 32.4% decrease in profit before tax in the reporting quarter, due to weaker demand.

The only bright spot in the company now is the rental properties business segment. Revenue from the segment had increased 6.6% year-on-year to S$101.4 million. Meanwhile profit before tax came in at S$39.9 million, up 16% year-on-year.

Moving on to City Developments’ balance sheet, the net gearing ratio had worsened slightly over the year, increasing from 26% at 31 December 2014 to 30% at end-September 2015. The real estate giant’s interest cover had also dipped from 11 times a year ago to 10.1 times. While a higher gearing and a lower interest cover are not welcome developments, City Developments’ net gearing of 30% can still be considered relatively strong and would likely not be a cause of concern for investors at this moment.

What lies ahead

According to City Developments’ management, the residential property market continues to be challenging. The company intends to carry on diversifying its business outside of Singapore and it hopes that the property cooling measures here would be reviewed soon. But, in looking at the performance of City Developments over the first nine months of 2015, the company seems to be heading in for a much weaker year overall.

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.