Asian Hotels and Properties1-3Q 07 results update

While most luxury apartments cater to the Sri Lankan expatriate community, stock analysts warned, the demand for such apartments could slow down in the short to medium term with the prevailing political uncertainty in the country.

Analysing Asian Hotels and Properties (AHPL), a C. T. Smith Stockbrokers report said that if the tensions in the country cease the industry would show better growth.

The report said that AHPL posted a 63 percent decline in its third quarter 2007 net profit to Rs.70.4 million, resulting in its first to third quarter net profit declining 48 percent to Rs.359.6 million.

It further said that revenue in the third quarter and up to third quarter were down seven percent and 15 percent to Rs.753 million and Rs.2,743 million, while finance costs increased 145 percent to Rs.54.4 million in the third quarter of 2007.

“First to third quarter finance costs were consequently up 346 percent from Rs.30.6 million to Rs.136.3 million, mainly due to debt undertaken to finance refurbishment and re-branding expenses,” it said, adding that the decline in profit is mainly due to the long term revenue cycle of AHPL’s property development sector, with nearly 50 percent of the estimated Rs.2-2.5 billion profit of the ‘Monarch’ apartment tower having already been booked up to third quarter in 2007.

‘Monarch’, which is currently under construction and expected to be completed by mid 2007, consists of 196 ‘pre-sold’ apartments. The final estimated 50 percent profit contribution from the project is expected to be booked upon completion next year.

The report added that the AHPL’s construction of the 172 apartment tower ‘Emperor’, is expected to generate similar earnings to that of ‘Monarch,’ and is scheduled for completion by end 2009. “Sales of ‘Emperor’ started in June 2006, and over 60 percent of the apartments have been pre-sold,” it said, adding that AHPL’s current property is expected to be able to accommodate one more tower.

The report said that the seven acre vacant land currently owned by JKH’s subsidiary CCS (5.0 acres freehold and the balance leasehold), could be one of the future major development projects undertaken by the Group, which could have a significant impact on sector earnings in the medium to long term, although security concerns may hinder progress in the short term.

The report further said that AHPL’s Hotels segment reported a Profit after Tax of Rs.159 million in 2007 from first to third quarter in 2007, down 33 percent from Rs.239 million in the same period the previous year. Trans Asia Hotels reported a 54 percent decline in its first to third quarter 2007 net profit to Rs.88 million, on the back of a steep 67 percent decline in its third quarter net profit to Rs.26 million, largely due to on-going violence and negative publicity in the country impacting occupancy levels. “Trans Asia incurred capex of Rs.320 million during first to third quarter this year and plans to re-brand TRAN as ‘Cinnamon Lake’ have been postponed due to the prevalent instability in the country affecting tourist arrivals in the short term,” it said.

Cinnamon Grand Colombo, however, reported a net profit of Rs.71 million up by 46 percent in first to third quarter 2007 despite sharply higher interest costs following its US$22 million refurbishment last year. “A significant contribution to the profit was the accommodation provided to the participating contingents of the South Asian Games held in August 2006 and also the Commonwealth Finance Ministers Summit held in September 2006,” the report said.