Trimmed market helps developers regain revenue

A focus on draining condo inventory and fewer condo launches helped listed developers regain some revenue momentum during the second quarter, says Asia Plus Securities (ASP).

Therdsak Thaveeteeratham, executive vice-president of ASP, said the total revenue of 16 SET-listed developers in the first half was quite poor, down 10.8% year-on-year to 103 billion baht, because of the property market slump during the outbreak.

But when looking at quarterly results, their revenue in the second quarter rebounded to 55.9 billion baht from 47 billion in the first three months, the latter the lowest since the first quarter of 2014.

“Despite the greater impact on economic sentiment from the pandemic, their second-quarter revenue was mainly driven by an acceleration of ready-to-transfer condo units sales packed with discounts and promotion campaigns,” he said.

Due to massive discounts, the combined net profit in the second quarter dropped 10.5% to 4.85 billion baht from 5.42 billion baht in the first quarter. Net profit margin also shrank by nearly half to 8.7% from 12-15%.

Gross margin in the second quarter decreased to 27% from the usual 33-35% even though developers managed to lower expenses on selling, general and administrative to 18%, which dropped from more than 20% in the first quarter.

“Developers eagerly tried to manage cash flow and cashing in as much as possible in a crisis to avoid liquidity problems,” said Mr Therdsak. “This is a good sign as their condo inventory continued to drop.”

As of the end of the second quarter, ready-to-transfer unsold condo inventory of 12 SET-listed developers, including their joint-venture projects, totalled 94.5 billion baht, a 7.5% decline from 102.18 billion baht in the first quarter.

The condo inventory reached its peak in the fourth quarter last year at 106 billion baht, up from 95.6 billion in the third quarter of 2019 which kept climbing quarterly from 62.4 billion baht in the second quarter of 2018.

Presales in the second quarter was in line with revenue with a jump from 52.47 billion baht in the first quarter to 71.68 billion baht.

Mr Therdsak estimated the combined presales of the 16 listed developers in 2020 would decline to 238.8 billion baht from 257.04 billion baht last year.

The peak dated back to 2018 with 354 billion baht because of many jointventure projects.

That year saw a presales record of 100 billion baht in a single quarter.

“Listed developers had a high debt which could become a default. But the debt in the property sector was not that high compared with other sectors,” he said.

Mr Therdsak said the actual cause of financial problems listed developers faced early this year was from mismatching. They used short-term finance for long-term assets.

“In the pre-Covid-19 period, bond issuance was easy. Developers chose to issue bonds aged a few years to finance a development project which took five years to complete. When bonds expired, they would roll over,” he said.

However, investors’ confidence dropped when sentiment was poor, leaving developers unable to roll over the expired bond.

“Now developers make a balance between bond and project loan, going back to their financial institution partners,” Mr Therdsak said.

Listed developers had a high debt which could become a default. But the debt was not that high compared with other sectors.

THERDSAK THAVEETEERATHAM Executive vice-president, ASP