Palm Hills Developments (PHD) achieved positive cash flows from operations of EGP 0.5bn in the first half (H1) of 2019, a trend that we are confident to continue throughout the rest of 2019.
In H1 of 2019, new sales (residential and commercial) amounted to EGP 6bn, translating into 964 units sold. Palm Hills Alexandria contributed the lion’s share with EGP 3.8bn (598 units), of which EGP 2.8bn were booked during the second quarter (Q2) of 2019. Meanwhile Palm Hills New Cairo recorded EGP 502m in H1 of 2019. New sales came 23% lower year-over-year (y-o-y) as H1 of 2018 saw the launch of Badya on May 3, 2018, and the sale of PK2 Mall in east Cairo during June 2018. Commercial new sales stood at EGP 363m, supported by the launch of PHD’s first dedicated business complex in west Cairo Golf Central adjacent to Bamboo and Bamboo Extension, which booked new sales of EGP 224m in H1 of 2019.
Net profit after tax and minority interest amounted to EGP 451m in H1 of 2019, an increase of 3% y-o-y, implying a net profit margin of 18%, a growth of five percentage points y-o-y. In Q2 of 2019, net profit grew 44% y-o-y to record EGP 310m, a net profit margin of 20%, an improvement of 9 percentage points over Q2 of 2018. The company spent EGP 1.1bn on construction activities during H1 of 2019, mainly on Palm Hills New Cairo, Golf Extension, Capital Gardens, Golf Views, Palm Valley, Woodville and The Crown.
Yasseen Mansour, chairperson and Group CEO comments, that “during Q2 of 2019, we were keen on reporting a quality set of results where we managed to generate positive cash flows from operations of EGP 505m in line with our target as announced by the beginning of 2019, which is further solidifying our balance sheet position.”
He further said that “We intend to engage in further securitisation and discounting transactions of gross receivables portfolio of EGP 1bn during Q4 of 2019 as the interest rate environment improves further complemented by the conclusion of projects under developments.”
He added that “our geographical expansion strategy in the untapped real estate markets started to bear fruit during H1 of 2019 with cumulative sales to date of EGP 4.7bn booked from the recent launch in Egypt’s second largest governorate, Alexandria.”
“We are still eyeing further improvement towards the end of year coming from our efficiency programme, which we adopted by the beginning of 2019 and led to a decrease of 13% y-o-y in selling, general and administrative expenses, along with the anticipation of further interest rates cuts in the upcoming MPC meetings during 2019, noting that the 150 basis points cut that took place on August, 22, is expected to yield total savings of EGP 70-80m per annum in interests, financing cost, and land liabilities,” he added.
Head of the Research Sector in the Pharos Holding for Investment Banks Radwa el-Swaify said that Palm Hills has positive business results and is expected to improve further with lower interest rates, but real estate companies need to cut interest rates further in order to anticipate a recovery.
She pointed out that whenever there is a reduction in interest rates, liquidity retention drops, meanwhile spending rises and markets, especially real estate, improves, adding that the interest rate reduction entices investors in financial instruments to move toward the real estate market.
She added that the low interest rates are in favour of the company’s orientation to conduct securitisation, which will reduce the cost of financing.