Property sector to fuel SYF Resources going forward
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Property sector to fuel SYF Resources going forward
Property sector to fuel SYF Resources going forward
By Kamarul Anwar / The Edge Financial Daily | December 21, 2015 : 9:49 AM MYTThis article first appeared in The Edge Financial Daily, on December 21, 2015.
KUALA LUMPUR: [size=16]SYF Resources Bhd ([You must be registered and logged in to see this image.] Valuation: 1.10, Fundamental: 1.10) is taking a contrarian view on the property development segment at a time when slowing demand has led many property developers to defer new launches. The group is looking to this segment to be its key growth driver going forward.
The property development segment, which contributed 29% of revenue and 52.27% of pre-tax profit in the financial year ended July 31, 2015 (FY15), helped SYF Resources double its net profit for the latest quarter ended Oct 31, 2015 (1QFY16) to RM10.83 million from RM5.15 million.
SYF Resources executive director Datuk Seri Chee Hong Leong is confident the property development business can continue to outperform the market in FY16.
“It’s not that we are better than everybody (other property developers). It just so happens [that] we have the land bank and opportunity to work with some landowners in Bandar Sungai Long and Semenyih, where the demand for housing is consistently there,” Chee told The Edge Financial Daily in an interview.
He sees the group will easily achieve a double-digit net profit growth FY16.
SYF Resources produces furniture and particle boards, and is seen as a main beneficiary of the weakening ringgit against the greenback.
However, Chee pointed out that the group exports its furniture to 87 countries, unlike other listed furniture companies, where most of their sales come from US customers.
As such, SYF Resources is not enjoying as much US dollar-translation gains as its counterparts because some of the company’s export markets are facing slowdowns and currency depreciations, he said.
“Since the US dollar is so strong, we have to give some discount to a few of our export markets. But this discount doesn’t hurt us, just that we’re not enjoying the foreign-exchange translation upside as much,” Chee said.
He explained that exporting to many markets helps SYF Resources spread out its risks.
“No one knows how long the US dollar will continue to be strong,” he said.
Year to date, SYF Resources’ share price has risen by 29.55% to 57 sen, but pales in comparison with other furniture stocks, which saw multifold jumps as their exports have benefited from the weaken ringgit.
Chee is of the view that this is due to SYF Resources’ hybrid nature. “When people look at property counters today trading below their revised net asset values, they’ll ask why SYF Resources should have a better upside than others.”
Chee said to just wait and look at SYF Resources’ earnings growth from FY16 onwards, which he anticipates will grow in double digits.
SYF Resources posted a net profit of RM24.59 million in FY15, up 13.31% from the previous year’s RM21.7 million.Latitude Tree Holdings Bhd ([You must be registered and logged in to see this image.] Valuation: 1.80, Fundamental: 2.70), meanwhile, saw its earnings jump 41.43% in its latest full financial year; while Poh Huat Resources Bhd ( Valuation: 2.10, Fundamental: 2.10)’s net profit grew 59.78% year-on-year.
Valuation-wise, SYF Resources’ 12-month trailing price-earnings ratio of 10.65 times last Friday is already nearing the 14.65 times average of pure-play furniture stocks’ such as Latitude, Poh Huat, Homeritz Corp Bhd ([You must be registered and logged in to see this image.] Valuation: 2.10, Fundamental: 3.00) and Sern Kou Resources Bhd ( Valuation: 0.90, Fundamental: 1.00).
Lower material costs also helped widen SYF Resources’ furniture pre-tax margin in 1QFY16 to 10.79%, from 5.63% the year prior.
For 1QFY16, 51.04% of SYF Resources’ pre-tax profit of RM13.02 million came from its property development segment. It concentrates its development in the Cheras-Kajang-Semenyih area, with the land banks held by Kiara Susila Sdn Bhd, a privately held company owned by Chee and SYF Resources’ executive chairman and chief executive officer Datuk Seri Ng Ah Chai.
SYF Resources will then collaborate with Kiara Susila for the development, with most of the earnings going to the listed entity.
“It’s better to give the profits to SYF Resources. With that, it can invest the returns in its plants and so on,” said Chee, who has a 10.99% stake in SYF Resources.
Beginning FY16, he said SYF Resources will sell RM500 million worth of properties over three years. It will sell mostly high-rise residentials in Bandar Sungai Long, valued around RM500,000 each.
“We just did a prelaunch for our Lavender Residence [project] in Bandar Sungai Long. We have only 200 units to sell, but we have received 300 bookings. As such, I believe this product is going to do well,” he said.
According to Chee, SYF Resources’ current launches attract buyers who are interested in renting out properties. With a Universiti Tunku Abdul Rahman (Utar) campus nearby, there is a huge amount of students looking for apartments to rent. Connectivity will also improve, as the mass rapid transit is set to be available next year.
“Utar just moved into Sungai Long. It’s now talking about increasing its students from 3,000 to 15,000 next year. So there is a big rental market.
“And there is no new upcoming development in the area that is focusing on RM500,000-per-unit type of property. So for the next few years, we believe SYF Resources’ development will be able to build some good pricing units to cater to local demand, especially for the rental market,” Chee said.
The banks’ clampdown on lending to property investors is one of the major causes of the slowdown in the property market. While there are people genuinely interested in buying houses, their loan application might get rejected — as seen in the declining approval rates.
To this, Chee said: “The ones who want to buy houses for investment tend to already have the money. So it’s quite likely they would have no problem.”
Meanwhile, SYF Resources is looking at introducing a dividend payout policy sometime in FY17.
“Once we offer dividends, we want it to continue. We don’t like to do something as a one-off, that’s no good. That’s one area we are working towards to take care of our shareholders,” said Chee.
SYF Resources shares closed one sen or 1.79 % higher at 57 sen last Friday, for a market capitalisation of RM348.4 million.
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