Sime Darby Property says profitability could be affected by higher building material costs and labour shortage

KUALA LUMPUR (May 26): Sime Darby Property Bhd said on Wednesday that the group’s profitability in the financial year ending Dec 31, 2022 (FY22) may be affected by margin erosion brought by higher building material costs and labour shortage.

“I guess we will be profitable, we will grow, but our profitability may be affected if we do not solve the issues (of higher building material costs and labour shortage),” its managing director Datuk Azmir Merican said in a virtual press briefing on Wednesday (May 25).

He also noted that the group’s financial performance for FY22 will be underpinned by unbilled sales which remain strong at RM2.9 billion and gives the company revenue visibility.

According to him, 60% to 70% of the unbilled sales will be reflected in FY22.

He also said the group is on track to meet the FY22 sales target of RM2.6 billion, underpinned by new launches worth RM2.8 billion in gross development value (GDV).

“We are quite optimistic that we will grow because of the sales we have secured. But I think it is a bit too early to predict today how margins will be affected (by higher building material costs and labour shortage),” he added.

He noted that the shortage of labour is an industry-wide issue and indicated his hope that the government will solve it as soon as possible.

“If the industry is able to resolve the labour problem, I am quite positive that all of us will still do well even though we are facing rising raw material prices because we are clever in how we manage raw material prices,” he said.

According to him, the company is exploring ways to protect its margins, such as looking at alternative materials and design simplification to minimise the costs.

He also noted most of its contracts are non-variation of price (VOP), which are less exposed to volatility in raw material prices.

“At the end of the day, we need to make sure that we are making profits. We noted that consumers are price sensitive and we need to deal with this quite carefully,” he said.

Sime Darby Property announced on Tuesday that its net profit for the first quarter ended March 31, 2022 (1QFY22) fell 21.51% to RM51.84 million from RM66.04 million a year ago, as its revenue slipped 18.42% to RM480.33 million from RM588.77 million.

In a note on Wednesday, AmInvestment Bank analyst Khoo Zing Sheng said it maintained the “hold” recommendation on Sime Darby Property with a lower fair value of 66 sen per share from 67 sen per share.

“Sime Darby Property’s 1QFY22 core net profit of RM52 million was below expectations, making up only 15% of our FY22 earnings while it accounted for 21% of consensus estimate,

“We lower our FY22/FY23/FY24 forecast core net profit by 27%/35%/14% to reflect margin compression from higher building material costs and slower progress billings due to labour shortage,” the analyst said.

Sime Darby Property closed one sen or 1.82% lower at 54 sen, valuing the group at RM3.7 billion.

Year to date, the counter has fallen 11.48%.

Edited by Joyce Goh

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