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Sansiri cuts costs to achieve double-digit margin

Bangkok Post May 25, 2009 The listed developer Sansiri Plc is confident its cost-control strategy will help lift its low net profit margin toward double digits by year-end, says president Srettha Thavisin. The company's net profit margin last year was only 6%, on revenue of 15.18 billion baht, while in the first quarter it recorded only 4% on revenue of 2.95 billion. This margin is far lower than those of giant developers such as Land & Houses Plc (LH), at 20%, and Preuksa Real Estate Plc (PS), at 18%. In the first quarter, Sansiri's sales and administration expenses were 16% of total revenue, compared with 10% for LH and 12% for PS. "Profit this year will increase by 20% due to our expense cutbacks in the past 12 months," said Mr Srettha. Sansiri late last year merged its property development business units with its subsidiary Plus Property and reduced its headcount by about 100. "This will also be coupled with our accumulated sales from last year. Now we have a sales backlog of about 17 billion baht," he said. Sansiri plans to adjust its brands in the second half to better communicate with customers in specific segments, including lower-priced townhouses and condominiums under Town+, My Condo and Condo One brands. "We have many brands representing premium, medium and lower segments that need to be clearly identified," he said. The plan is also aimed at preparing the company for intensified competition in the lower-end market late next year or in 2011, said Mr Srettha. "Five years ago, who would have thought that Sansiri would build houses priced at 3 million baht?" he said. "Limiting yourself to not building low-priced residential units won't help achieve expected growth." Sansiri is now strong in housing priced at 3-7 million baht and, in the long run, must develop housing priced below 3 million baht, he said. "Eventually, everyone has to jump into the lower-end market. Even LH has." To compete in the lower-priced segment, prices must match those of Preuksa, the market leader, he added. Sansiri early next month will raise funds through issuing 1 billion baht in three-year debentures at 6.25% annual interest. The funds will be used for working capital and for buying land. It plans to buy eight land plots with a budget of 3 billion baht this year. These will include plots for two condominiums in Bangkok, one of them on Phloen Chit Road. Sentiment in the local market has improved on signs of the economic crisis bottoming out in the United States, said Mr Srettha. But the absence of foreign buyers and investors due to the crisis has had a limited impact on Sansiri, as only 2% of its clients are foreign, he said. "Foreign buyers will eventually come back and we're preparing to expand our client base to more foreign markets," he said. "Political stability is now a major factor that will determine the country's credibility for investment. But changing government or dissolving parliament won't affect much as it's a natural political process that happens in many countries," he said. Sansiri expects revenue of 3-4 billion baht in the second quarter and 6 billion in the third quarter. Mr Srettha is confident sales will reach 17 billion baht this year, up 12% from last year, as the company has already recorded 81% of its total target in the first four months. Sansiri plans to launch 18 projects this year, up from an earlier target of 16. Shares of Sansiri (SIRI) closed on Friday on the Stock Exchange of Thailand at 2.56 baht, up 16 satang, in trade worth 40 million baht.

 

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