Real estate market slowdown helps dent FMI annual profits

First Myanmar Investments (FMI) published its annual financial results yesterday, showing a severe drop in net profits. The great bulk of the fall was down to a group restructuring the previous year, although a “stagnant” property market also hurt the firm’s bottom line.

The latest annual report was FMI’s first as a listed company, having launched its shares on the Yangon Stock Exchange in March. The firm’s share price has struggled to stay above the original K26,000 listing price lately, and lost K1500 yesterday to close at K23,500 – its lowest finish yet.

The firm also announced a cash dividend of K135 per share yesterday, which will be paid to those holding FMI stock as of July 7, according to an announcement on the YSX. The dividend must be approved by FMI shareholders at the company’s annual general meeting in August.

FMI paid a cash dividend of K120 per share following the 2014-15 financial year, and combined share and cash dividends in 2013-14 and 2012-13. But U Tun Tun, FMI’s chief financial officer, said investors should “care about the performance and long-term profitability of the company, rather than the dividend”. The announced K135 figure was low relative to FMI’s earnings this year, he added, but advised investors to “wait and see” how the company delivered over the longterm.

Although FMI is optimistic on its “three pillar” strategy of focusing on financial services, real estate and healthcare, the firm’s net profit for the 2015-16 financial year was K8.91 billion, a sharp fall from the K73.1 billion it posted the previous year.

But the higher profits of 2014-15 were down in large part to restructuring that year, which saw FMI sell off businesses across the automotive, elevator and agricultural sectors. The group also reduced its stake in FMI Air that year from 50 percent to 10pc.

The collective proceeds from these divestments totalled K13.9 billion, and the accounting treatment of the sales gave the group a one-off gain of K60.4 billion that finanicial year.

This year there were no such sales, and so the group’s “profit from non-operations” fell from K60.4 billion to K7.9 billion – accounting for K52.5 billion of the K64.2 billion drop in profits.

But a “stagnant” real estate market also hurt profits from FMI associate companies, most of which come from Yoma Strategic Holdings’ Star City project. Associate firm profits dropped from K15.4 billion to K3.9 billion, “due to the generally softer real estate market ahead of the national elections”, the firm said.

Star City contributed K3.3 billion of that figure, and accounted for over one-third of the group’s net profits for the 2015-16 financial year.

U Tun Tun said that the property market had a “huge effect on the company’s income”, and that earnings from most of FMI’s joint ventures had fallen. But the firm said it is excepting a stronger property market this financial year, and higher profits from real estate associates as a result.

Gross margins were also down in 2015-16– from 38.8pc to 31.9pc – due mainly to a higher cost of sales at Yoma Bank. The lender faced pressure on its net interest margin due to a “competitive banking environment” and took losses on FMI Air before it was sold last year.

With lower margins and slower sales from Star City, the FMI group suffered a drop in profits from operations, which fell from K13.7 billion to K2.5 billion.

Earnings per share also took a hit – falling 89pc to K407. This was down to the drop in profits on one side, and on the other the issuance of 1 million new shares during 2015-16 as part of an employee share incentive scheme.

U Tun Tun told The Myanmar Times that FMI had no plans to issue new shares at present.

On the bright side, revenue skyrocketed in the 2016-17 financial year – although like the drop in profits this was more to do with restructuring than any fundamental shift in FMI’s operations.

During the previous financial year the group was still in the process of consolidating Yoma Bank and Pun Hlaing Siloam Hospital (PHSH) onto its balance sheet, and so revenues from those businesses were only partly recognised. The group was able to recognise the full value of revenue from the banking and health care businesses in 2015-16.

Yoma Bank, which contributed over 86pc of FMI revenue in 2015-16, also posted strong growth. The bank increased its loan book from K415.3 billion to K772.8 billion, and deposits from K689.6 billion to K1.1 trillion as of the end of 2015-16.

 

Source: The Myanmar Times

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