SP Setia hurt by high material costs

PETALING JAYA: SP Setia Bhd's net profit for its second quarter ended Apr 30 dropped 19.68% to RM47.99mil from the previous corresponding period mainly due to the escalating costs of building materials.

Revenue was 5.12% higher at RM301.51mil.

In a note attached to its quarterly result, the company said despite the challenging economic and business environment, expansion plans were on track.

Sales for the financial year 2008 (ending Oct 31) so far had remained strong and had hit RM951mil as at May 31, it said.

The company said rising costs remained the key concern and would be dealt with via a review of how contracts were awarded by incorporating cost-escalation clauses.

It added that operations would be restructured to make it more cost efficient while key infrastructure and amenities in the townships that the company was developing would be expedited and improved to “enable justifiable price increases to be passed on to purchasers”.

Aseambankers Malaysia Bhd said in an equity research report dated June 23 that SP Setia faced the twin risks of dwindling buyers' confidence and margin compression, which might cripple earnings growth.

“We conservatively cut our FY09 earnings forecasts by 12% to 19% in anticipation of slowdown in launches and margins pressure,” it said.

It added that with no immediate catalyst amid domestic and external uncertainties, the company's stock price was expected to languish over the next three to six months.

Recently, Real Estate and Housing Developers Association vice president Datuk F.D. Iskandar F.D. Mansor said the residential segment of the property industry faced “challenging times” due to higher oil price-fuelling inflation.

He said contractors were also not keen to take on new projects as they were adopting a wait-and-see attitude.

However, Sime Darby Property senior executive vice-president Datuk Abdul Wahab Maskan was quoted as saying in a report yesterday that despite the escalating costs of construction, the property arm of Sime Darby Bhd would not be deferring launches of new projects.

By The Star (by Fintan Ng)