Metro Holdings net profit tumbles 78.2% to S$3.3m

See what decimated its bottom line.

Mainboard-listed property investment and development group Metro Holdings Limited (Metro) reported that revenue held steady at S$44.2 million for the three months ended 30 June 2013 (1QFY2014). Higher rental income from the Group’s Property Division was offset by lower turnover from its Retail Division.

Refurbishment costs of S$2.8 million at Metro City Shanghai reduced the Group’s gross profit to S$10.3 million in 1QFY2014, compared to the S$12.7 million achieved in the previous corresponding quarter. Net profit attributable to shareholders declined 78.3% to S$3.2 million in 1QFY2014 from S$14.8 million in the same corresponding period (1QFY2013), mainly due to fluctuations in the fair value of the Group’s portfolio of short term quoted equity investments.

Metro’s Chairman, Lt Gen (Rtd) Winston Choo, said, “In view of continued market volatility, we have taken steps to reduce the size of our portfolio of short term quoted equity investments.

“Our mature properties in Tier-1 cities in China continue to enjoy good rental income, with higher rental rates. Average occupancy at all our investment properties remains high although Metro City Shanghai’s occupancy is lower because it is undergoing an asset enhancement and refurbishment exercise. We will continue to maintain an optimal tenant mix and efficient management of our existing properties to improve yield.”

Revenue for the Group’s core Property division rose 4.9% to S$15.5 million in 1QFY2014 from S$14.8 million in 1QFY2013 mainly due to higher rental rates of the Group’s investment properties in China and a 2.5% strengthening of the renminbi (RMB).

Notably, the Group’s Property segment continued to see high occupancy from its five investment properties – Metro Tower Shanghai, GIE Tower, Guangzhou, EC Mall, Beijing in China; and Frontier Koishikawa Building, Tokyo in Japan – averaging 92.9% as at 30 June 2013. Occupancy of Metro City Shanghai was lower than usual at 91.8% due to major asset enhancement and refurbishment exercise on three of its nine levels of space.

Sales from the Group’s Retail division declined 2.4% to S$28.7 million in 1QFY2014 from S$29.4 million in 1QFY2013 mainly due to lower sales from its Singapore operations. This was mitigated by higher sales from the Group’s associated company in Indonesia.

The Group’s balance sheet remains strong with cash of S$373.8 million and shareholders’ equity of approximately S$1.2 billion as at 30 June 2013.

Commenting on the company's outlook, Lt Gen (Rtd) Winston Choo, Metro’s Chairman said, “We will continue to look at opportunities to unlock and recycle capital effectively as we’ve done for our Pasir Panjang warehouse property, which will record a disposal gain of S$29.6 million. At the same time, we are looking for further yield improvements through asset enhancement initiatives. While costs of the Property division are expected to be affected by the refurbishment of Metro City Shanghai in FY2014, we expect rental yield to improve following this enhancement exercise.

“We look forward to the planned residential sale launches for the Prince Charles Crescent project in Singapore in FY2014 and the progressive recognition of turnover.”

Volatile market conditions dictate that the balance of the Group’s portfolio of quoted equity investments in REITs will continue to see changes in their fair value as they are marked-to-market. In addition, the Group remains subject to significant currency translation adjustments on foreign operations due to foreign exchange volatilities, given that a large portion of its investment properties are located in China and denominated in the RMB.

Notwithstanding keen competition and rising operational costs – in particular, staff and rental costs – in the retail sector both in Singapore and Indonesia, the Retail division seeks to maintain its sales performance. Higher sales of the Retail division’s associated company in Indonesia is likely to enhance profitability although it will be affected by start-up costs of both newly opened and pipeline stores.