Sunday, May 3, 2009

BTO: MCL books profit on just 5 Fernhill units in Q1

Business Times - 30 Apr 2009

MCL books profit on just 5 Fernhill units in Q1



HONG Kong Land subsidiary MCL Land, which yesterday posted a 72 per cent year-on-year drop in net profit to US$1.4 million for the first quarter ended March 31, 2009, said that the buyer of 20 units at The Fernhill project has not made the necessary payment when the project received Temporary Occupation Permit (TOP) in March. This confirms a recent BT report.


As a result, MCL booked for Q1 the profit for only the five units in the 25-unit freehold project for which buyers have paid the outstanding purchase price by the payment date.


MCL Land's policy is to recognise 100 per cent of sales and profits on units sold only when the project receives TOP. However, for Fernhill, it has deferred income recognition for the 20 units because of the outstanding payment.


The company, which reported Q1 revenue of US$8.3 million, said that had the purchaser of the 20 units paid up in full, MCL's Q1 revenue and profit would have been US$31 million and US$9.3 million higher respectively.


If the buyer of the 20 units - which BT has reported as Concordia Overseas Pte Ltd - fails to pay up by the time a 21-day notice period to repudiate the sale and purchase agreement ends around late-May, MCL would be entited to treat the 20 per cent paid so far as forfeited and resell the units. At that point, MCL can book the 20 per cent as forfeiture income. As and when it resells the freehold apartments, it can book profit on them. If MCL sells at above $1,128 psf ($1,410 psf sale price to Concordia less the 20 per cent collected so far), then the total profit on the 20 units would be higher than the said US$9.3 million. This is likely to be the case given prices being fetched at recent launches in District 10.


BT's earlier report said that Concordia, controlled by Hong Kong resident Chan Ki, had bought all 25 apartments in The Fernhill in January 2007 at $1,410 per square foot. Later the same year, it flipped five of these units to foreigners at an average price of nearly $2,200 psf.


Market watchers say the outcome for The Fernhill reflects the risk of selling the chunk of units in a project to a single buyer on a deferred payment scheme (DPS), where typically only 10-20 per cent of the purchase price is paid initially, with the bulk due when the project receives TOP. DPS was scrapped in October 2007.


MCL has another two projects slated for completion this year - - the 129-unit Tierra Vue condo at St Patrick's Road and Hillcrest Villa, a 163-unit cluster terrace homes development in the Dunearn Road area.


These projects have been sold to individuals although a handful of buyers are believed to have purchased two to three units each. For Hillcrest, another factor that should reduce the risk of non-completion of sales is that all the buyers are Singaporeans (the project is classified as landed housing). Property consultants say that property investors, especially foreigners and even if they are permanent residents in some cases, are finding it tough to get housing loans from banks.


In February, MCL became the first Singapore-listed developer to book provisions for its residential landbank this market downcycle. It wrote down the value of development properties for sale by US$180.2 million, and this pushed MCL into the red, with a US$107.3 million net loss.


The provisions leave MCL with flexibility to launch new projects at an opportune time, generate cash flow and begin a new cycle of profit-booking.


MCL Land chairman YK Pang said in yesterday's results statement: 'With strong cash flow generated from the sale of development properties and a healthy balance sheet, the group is well placed to weather the difficult economic and market conditions.'


Earnings per share fell from 1.36 US cents in Q1 2008 to 0.38 US cent in Q1 2009.

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