26 November 2014

Sim Lian Annual Report 2014 Quick Analysis - November 2014

Sim Lian group is a local construction company that ventures into property development and property investment in Singapore as well as in oversea (Australia). The portfolio of developments at home now include residential, commercial and integrated developments in key locations.

Financial Highlights

Income Statement
The group achieved total revenue of S$715M for FY 2014, a 3.7% drop from a year ago. Net profit however showed 2.3% improvement to S$172M. There are several reasons attributed to this:

  1. Improvement in gross profit margin - 30.19% compared to 27.21% a year ago, which I believe is due mainly to changes in product mix as well as better operating efficiency.  
  2. Increase in other operating income - S$7.7m compared to S$5.8m last year, due mainly to increase in interest income and other rental and sundry income. 
  3. Shares of results of joint ventures, net of tax increased to S$22.5M from S$11.7M previous year.  

However the increase of the above items was offset against the negative change in fair value of investment properties of S$15.5M (mainly Australia properties which it acquired when AUD was higher against SGD) and increase in finance costs to S$2.1M.

Net profit margin is 24% compared to 22.6% last year. EPS is 17.0 cents compared to 17.2 cents last year. The trailing PE is about 4.94 X.

Balance Sheet

The group is having cash of about S$329M, a decrease of S$14M compared to last year. Nonetheless, the Trade and other receivables increased to S$353M due mainly to receivables from JV as well as from property development customers, while development properties reduced to S$870M, as certain projects have obtained TOP during the financial year.

The breakdown of development properties is Completed development properties - S$209M, uncompleted development properties under CoC method - S$530M, and uncompleted development properties under progressive method - S$129M.

Under non-current asset categories, Joint Ventures represented S$213M, a S$25M decrease from a year ago, due mainly to decrease in loans to JV of S$49M as part of the JV projects was completed and the loan to JV now becomes items under trade and other receivables categories offset by increase of shares of results of JV, net of tax to S$38M compared to S$15M a year ago. JV achieved total revenue of S$308M and net profit of S$45M (net profit margin of JV is about 14.6% compared to 16.93% last year)  and the group was entitled for profit sharing of S$22.5M.

Investment properties is S$241M, which comprises of:

  • a shop unit in Bukit Timah Shopping Centre
  • 52 Hillview Terrace factory building
  • 50 Margaret Street, Sydney - Commercial building
  • 747 Tarneit Road, Tarneit, Victoria - Shopping centre
  • 759 - 761 Deception Bay Road, Rothwell, Queensland - Shopping centre
  • 6 Coltman Plaza, Lucas, Victoria - Shopping centre
  • 61 Water Gum Drive, Jordan Springs, New South Wales - Shopping centre
  • 275 Pacific Highway, Lake Munmorah, New South Wales - Shopping centre and land
Trade payables increased to S$651M from S$468M due mainly to monies received in advance for projects that could recognize the revenue and profit after the whole project is completed. 

Total equity attributable to owners of the Company improved 14.5% to S$984M, from S$859M a year ago, due mainly to increase of retained earnings offset by dividend payout of S$46M. As the company declared 4.6 cents dividend, the trailing dividend yield is about 5.5%.  

Projects Highlights (Ongoing)

  • Parc Vera - Residential development - 86.1% completed - expected TOP Dec 2014
  • The Tampines Trilliant - Executive Condominium development - 78.5% - expected TOP Mar 2015
  • KL Trillion - Residential cum commercial developments - 40% completed - expected TOP Sep 2015
  • Terneit, Victoria, Australia - Vacant Land
JV Projects (Ongoing)
  • Sim Lian JV (Treasure) - Private Condo development @ Punggol - expected TOP 2Q2015
  • Sim Lian JV (BP Retail) - Hillion Mall @ Bukit Panjang - expected TOP 2016
  • Sim Lian JV (BP) - Hillion Residences @ Bukit Panjang  - expected TOP 3Q2018
  • Sim Lian JV (Vision) - Vision Exchange commercial development @ Jurong - expected TOP 4Q2018
  • Sim Lian JV (Axis) - 
  • Sim Lian JV (Punggol Central) - 
If we look at next 3 years, the group actually do not have many projects as compared to last 2 years, but they do have the potential to emerge to be a bigger market cap player after the completion of Vision Exchange and Hillion Mall as both are more on retail / commercial development which would further boost up the branding of Sim Lian, as well as creating recurring income to Sim Lian.

Based on the latest quarterly report (1Q15), Sim Lian recorded rental income of more than S$5M, which I believe the gross rental income from investment property could easily achieve S$20M mark (near to 8-9% of investment property value, but you have to offset it against the financial cost due to the increase of bank borrowing after the investment property acquisition), and it is a cushion to Sim Lian group while they are waiting for good opportunities of land purchasing while overall property market is weak now. 

As this is property cum construction counter, it may experience a greater volatility in term of revenue as well as net profit as compared to other sectors. Nonetheless, Sim Lian provides a good dividend yield now (more than 5% dividend yield) or paying S$46M as dividend to shareholders, I believe that it is a good strategy to enjoy such a decent dividend yield while waiting for property market to recover (probably make take for another 2 more years before government to loosen up the property tightening policy. 

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