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Ioi Properties Berhad Financial Analysis

1508 words - 6 pages

Company OverviewThe IOI Group's property business are principally carried out by the Company's 69% owned listed property arm, IOI Properties Berhad. The main stream of the property business is the development activities, which contributed more than 90% of the overall property business's operating profit. Besides, the Group is also involved in property investment and most of the investment properties held by the Group are mainly in respect of retail complexes and office buildings developed as part of our township development.Over the years, the Group has build a reputation as a reliable and successful township developer with our mainstay being the Puchong growth corridor and southern Johor.The Group's property investment portfolio comprises mainly of retail and office space totaling approximately 1.6 million sq ft of net lettable space (FY 2004 - 1.8 million sq ft), of which about 100,000 sq ft is located in Singapore.Property Market AnalysisThe overall property market has become much more competitive and challenging as a result of some of the external factors such as rise in oil prices. Persistently high oil prices which have decelerated economic growth and affected prices of household items significantly over the last one year has rendered house buyers becoming more cautious to commit and hence affected the sentiments which were more buoyant a year ago. That's reflected in a gradual drop in company revenues from year 2003 to 2005. Nevertheless, the improved accessibility with the opening of the Bandar Puteri interchange coupled with increased commercial activities in Bandar Puteri has attracted not only the residential buyers but also significant interests in the commercial and shop houses. It contributed to the overall profitability IOI Properties Berhad and helped the company to offset impact from lower sales of residential units.Financial AnalysisGross Profit Margin- The ratio is often seen as indication of quality of services provided and efficiency as far as cost structure is concerned. Gross Profit Margin ratio is a very important indicator in the property industry, where companies try to keep their cost structure low in order to reap high profit margins. In the case of IOI Properties, its 3-years gross profit margin average hovers around 51%, which can be considered as a good indicator. Looking at its revenue trend, we can infer that its gross profit margin is maintained high mainly due to a low cost structure and new market opportunities. For example, in year 2005, its revenue declined from RM 678 Mil to RM 591 Mil, yet its Gross Profit Margin showed an increase of 7%. That can imply that IOI Properties is a low cost operator. Compared to 3 years industry average, gross profit margin of IOI is higher than the industry players. If we analyze the gross profit margins of Negara Properties, Glomac & Talam, we will find out that IOI shows the highest gross profit margin indicating to the fact that IOI is a cost efficient operator compared...

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