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A Cross-Border Battle of Singapore and Malaysia’s Largest Property Companies

The real estate sector has been an important part of Singapore’s economy. That’s why I don’t think it’s surprising to see that many large listed companies in Singapore have businesses that deal with property.

In fact, within Singapore’s stock market barometer, the Straits Times Index  (SGX: ^STI), there are seven companies that have large exposure to real estate. Up north of Singapore in Malaysia, there are also many property developers listed on the stock exchange there.

In here, let’s pit one of Singapore’s largest property companies, CapitaLand Limited (SGX: C31), against one of Malaysia’s largest, IOI Properties Group Bhd (KLSE:5249.KL). The aim is to see which has the better business fundamentals.

An introduction

CapitaLand is a leader in the property market in Singapore. With a market capitalisation of more than S$12 billion, the company has business interests around the world and has sponsored multiple real estate investment trusts that are listed on the stock exchanges of both Singapore and Malaysia.

In Malaysia’s corner of the dueling ring, we have the RM9 billion IOI Properties Group, the largest pure play company in the country’s stock market. The company, which has developments in Malaysia, Singapore, and China, is a listed subsidiary of the conglomerate IOI Corporation Bhd (KLSE:1961.KL), a RM 30.0 billion company with diverse business interests ranging from real estate to plantations and manufacturing to resources.

Amount of revenue and profit

In terms of sales, CapitaLand is in a league of its own. In their last completed fiscal years (the calendar year 2014 for CapitaLand and the 12 months ended 30 June 2015 for IOI Properties), the Singapore company recorded revenue of about S$3.9 billion while IOI Properties only booked revenue of RM1.9 billion (around S$650 million).

It’s a similar story when it comes to the bottom-line. CapitaLand’s net profit was S$1.1 billion whereas IOI Properties’ was ‘only’ RM890 million (S$280 million).

So as you can see, CapitaLand Limited clearly is the winner on the size-front.

Profitability

Interestingly, IOI Properties seems to be the one that has higher profitability. The company had managed to clock a gross margin of more than 50% in each fiscal year from FY2011 (year ended 30 June 2011) to FY2015. CapitaLand, on the other hand, only had an average gross margin of 37% from 2010 to 2014.

Meanwhile, although IOI Properties had a return on equity of 7.3% in FY2015, similar to the 7.3% delivered by CapitaLand in 2014, the Malaysia-based company had a return on asset of 2.6%, which is way higher than the Singapore firm’s 1.4%.

Therefore, in looking at both companies’ gross margin and return on assets, IOI Properties appears to be the stronger of the two in allocating its capital to generate profit for investors.

Valuation

CapitaLand is currently trading at 11 times trailing earnings, provides a dividend yield of 3%, and has a price to tangible book value of just 0.7. That does not seem like excessive valuations to me.

But, IOI Properties has even lower valuations. It has a price-to-earnings and price-to-book ratio of just 8 and 0.5, respectively. The only snag is that its dividend yield is only at 2.9%.

Foolish Summary

To sum up what we’ve seen, while CapitaLand is the larger real estate company, IOI Properties is the one with better profitability and valuations. But, do note that none of the above is meant to be taken as the definitive word on the investing merits of both firms; a deeper study is required before any investing decision can be reached.

Meanwhile, if you'd like more investing analyses and important updates about the stock market, you can sign up for The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead.

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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 does not own shares in any companies mentioned.