LCL and Its Dubai Woes

LCL reported its earnings.

As expected not good.

From the company's quarterly earnings notes...

• Compared to cumulative preceding year corresponding quarter, the Group has recorded lower revenue of 22.19% to RM 80.334 million. This was mainly due to some of the on-going projects have coming close to completion and hence resulted in the lower progress billing to date. The Group also recorded a loss before taxation of RM 16.433 million as compared to profit before taxation of RM9.537 million. The continuous cost overrun of on-going projects in Dubai, mainly due to the prolongation of projects and additional financial cost incurred resulting from slower collection, has negatively impacted the financial performance of the Group.

• The Group recorded a decrease in revenue of 30.68% to RM 80.334 million as compared to preceding quarter of RM 115.894 million. However, there has been some marginal improvement in the financial performance whereby the loss before taxation recorded narrowed by 22.26% to RM16.433 million as compared to RM 21.138 million recorded in the preceding quarter. During the quarter, the Group has embarked on aggressive collection exercise and has written down some receivables after commercial settlement reached with clients on payment of contract proceed due. The on-going consolidation and scaling down exercise of selective non-profit contributing operations have also contributed to the unsatisfactory performance of the Group.

Hmmm.... "mainly due to the prolongation of projects and additional financial cost incurred resulting from slower collection".. that's the main issue right?

Why is the prolongation of the projects happening? Would the answer be the property market in Dubai crashed!

Why is the slower collection happening? If the property market crashed, wouldn't the developers have a difficult time paying?

And with LCL's own balance sheet extremely stretched to extreme high borrowings, would you say that an investment in LCL is extremely risky?

Oh, how ironic it is that on the Financial Edge: Dubai leads global housing-market slump

• LONDON: Dubai, home to the man-made Palm Jumeirah and The World island developments, suffered the biggest reversal among global housing markets following the collapse of an investment bubble, Knight Frank LLP said.
  
  House prices in Dubai, the second-largest of the seven sheikhdoms that make up the United Arab Emirates, fell 32% in the 12 months ended March 31, according to a report by the London-based property broker published yesterday. A year earlier, homes appreciated at an annual rate of 48%.
  
  Dubai “is in a mess”, said Nick Barnes, head of international residential research at Knight Frank. “A lot will depend on developers and how long they can hold on before getting into fire-sale territory.”
  
  The sheikhdom was hurt more by the global financial crisis than other property markets because of the construction boom that created thousands of new homes just as demand began to evaporate. Within a year, Dubai went from being the fastest rising of 46 markets monitored in the Knight Frank global house-price index to the second-biggest decliner after Latvia.
  
  Deyaar Development PJSC, the Dubai-based company that put a quarter of its projects there on hold, will announce a 500 million-dirham (RM478.45 million) property fund to buy distressed assets within three weeks, chief executive officer Markus Giebel said in an interview on May 14.
  
  In the first quarter of 2009, house prices in Latvia dropped 36%, while Singapore was the third-worst performing market with a slide of almost 24%. They were followed by the US and the UK, where prices declined about 17%.
  
  The biggest increase in property values tracked by Knight Frank was for Israel, where homes appreciated by almost 11%. The Czech Republic and Jersey came second and third respectively, the broker said.
  
  “In Israel, demand still outweighs supply,” said Werner Loval, founder of Anglo-Saxon Real Estate, an Israel-based property broker. Israel’s largely Jewish foreign buyers are motivated “more by sentiment” than by speculation, he said. — Bloomberg

Yup, that super nice looking Palm Jumeirah and The World island is in trouble! (do see Dubai's House Prices Drop 41% In Q1!! and also No Longer The Same Dubai As Global Economic Crisis Hits Dubai Hard. )

Past postings on LCL

• Some Thoughts On LCL
• Update On LCL
• Warning Sign On LCL As It Misses Deadline To Submit Audited Reports!