SCR Struggling for Profit

SCR is a large capitalized company and a top ten real estate businesses. Recently, with the withdrawal of Hoang Anh Gia Lai from the real estate market, whether SCR can succeed or not is attracting the attention of the market.

 

It must be said that, in the period of 2010 - 2012, the time real estate market went into a freezing period, the SCR still achieved profit. The peak was in 2010 when the SCR gained VND1,117 billion revenue with net profit of VND426 billion. Following years was its sliding stage with revenue in 2011 and 2012 being VND554 billion and VND586 billion respectively. The drop of half in both revenue and profit compared to 2010 was no surprise because of increasing difficulties of the real estate market.

However, with a deeper look into the nature of 2010, it can be seen that the revenue from the successful implementation of several major projects, and partly from financial income, was VND1,243 billion due to transfer of 65.49 percent of Celadon City ownership.

 

In 2011 and 2012, revenue from financial activities contributed VND502 billion and VND381 billion respectively, accounting for half of the total revenue which came primarily from the transfer of the project to level 2 investors and liquidation of short term investment securities. In 2013, SCR set a revenue target of VND1,422 billion, 132 percent compared to that of 2012, pre-tax profit reached VND150 billion, equal to 118 percent compared to 2012. To achieve the plan, SCR gained revenues from the sale and transfer of apartments, in which apartment sales account for 80 percent, mainly from the Belleza project, contributing about VND850 billion to the revenue in the 2013 fiscal year. Also, implementing long-term investments also brings large revenues, as divestments from Celadon City with approximately VND200 billion and the payment of US$488,235 from the Saigon Thuong Tin Tan Thang Real Estate Investment Company in 2013 for the difference from the amount of land use fee of Celadon City that SCR benefited.

In 2013, SCR focused on implementing 4 key projects including Belleza, Carillon, Arista Villas and Jamona City, with the expectation to help increase cash flow and increase liquidity. Accordingly, Belleza project has been implementing the handover of apartments since November 2012 and is finalizing the legal basis for the converted apartments to be on sale in the 2^nd quarter of 2013. For Carillon project, the company is planning to sell housing and is expected to implement handover in the 4^th quarter of 2013. Arista Villas project launched sales in the 2^nd quarter of 2013. Jamona City project is planned to be on sale in the 3^rd quarter of 2013.

It can be seen that SCR has many other favourable factors to achieve the profit target due to high percentage of cleared land – about 600 hectares. SCR projects mainly focus on the average and low price segment and are always completed on schedule as committed to customers.

However, the profit target of SCR may not be achieved because the first 6 months of 2013 saw losses of VND55 billion (VND56 billion of losses in the 2^nd quarter), while in the same period in 2012, SCR profited VND96 billion.

 

According to the explanation of the SCR, the difference is due to the sluggish market and high financial costs. If you look closely on the financial statements, the loss was the result of borrowing costs of VND65 billion. Increased selling expenses and administrative expenses led SCR to a net loss in the first six months of the year.

At the end of the 2^nd quarter 2013, the total loan which has to be paid is VND2,495 billion, of which short-term debt was VND2,058 billion and long-term debt was VND437 billion. According to the financial institution, the debt ratio is high compared to peers. SCR is increasingly dependent on loans from individuals up to VND1,286 billion, although these loans have low interest rates ranging from 13 to 13.5 percent / year, they are due in 2013 and 2014 so the pressure to pay these loans is huge, especially if the situation of real estate consumption is not positive. Meanwhile, loans borrowed from banks are getting less, only about VND437 billion with interest rates ranging from 15-17 percent / year and maturities from 2015 to 2017. This shows that the capital of SCR funded by bank is dwindling.

At the end of June 2013, the total inventory value of SCR is more than VND3,253 billion, decreasing by 4 percent compared to those in the end of 2012, provision for diminution in value of inventory is VND5.5 billion. The value of inventories focused on Bac Rach Ba Buom project, Phu My Belleza project, Carillon apartment and Tan Thang urban area. In the inventory of VND3,253 billion, the two projects Carillon and Belleza have accounted for VND1,000 billion, but in fact, over 95 percent were sold and payment scheduled.

 

However, more worryingly, the money primarily came from Belleza capital projects in 2012, due to lack of revenue recognition, it was recorded this year, and the Carillon project revenue was recorded in 2014. According to SCR leadership, in the context of the current sales situation which will not be improved much, except Carillon project can be sold well, the remaining projects are very difficult to sell. Incomplete legal procedures also affected partly to the sale of a number of projects. The liquidation of the property is not under proposed plan because partners wary of investing in the present time.

 

Although SCR has large a land fund, at this time the inventory is a huge burden for SCR due to repayment pressure. Therefore, SCR is also counting on the transfer of capital (34.51 percent) in Celadon City to improve profitability in 2013.

According to the SCR, the capital transfer procedures were almost completed with expected profit of about VND200 billion. Therefore, according to the calculation of Bao Viet Securities Company, without the financial income from this business, SCR would suffer losses of about VND71 billion this year. So, we can say that the profits of SCR in 2013 will depend primarily on the amount of financial revenue and sales in 2012.