Mall Project Boosts Modernland Gross Profits

The gross profit margin of property issuer, PT Modernland Realty Tbk (MDLN), is projected to increase after the company completes the development of its street mall in Kota Modern, Tangerang, in early 2012. This mall project is predicted to generate 60 to 68 percent gross profit margin, according to the IFT Research Department.

Gunawan Setyo Hadi, Advertising & Promotions Manager of PT Modernland Realty, said that the development of Modern Walk will start in mid June 2011 and is targeted to operate in the first semester of 2012.

The company allocated Rp 250 billion (US$ 29.25 million) to Rp 300 billion (US$ 35.1 million) for the project. The company said that it received 26 prospective tenants who have stated their commitments to open outlets in the commercial project.

“Two of them are major (anchor) tenants,” he said in Jakarta, Thursday.

According to the IFT Research Department, the average gross profit of Modernland in the last five years reached 44 percent. After the street mall project is opened and operational, its gross profit margin is projected to rise higher.

In the first quarter of 2011, the company gross profit margin decreased from 50.8 percent to 45.1 percent due to high sales cost. However, company revenues increased significantly by 218.5 percent from Rp 42.9 billion to Rp 136.6 billion. Sales growth was supported by sales of land and residences. The company's gross profit increased from Rp 21.8 billion to Rp 61.7 billion.

The operation of the mall next year will add to the recurring income of the company. In the last five years, Modernland's recurring income contributed Rp 27 billion per year on the average, or 13 percent of the total revenue from property.

Recurring income comes from revenues from its golf course and club house restaurant. Its recurring income has the potential to maintain the stability of company revenues during the property industry cycle.

Modernland is optimistic that its sales in 2011 will reach Rp 530 billion, up 112 percent from Rp 250 billion last year. The company allocated a capital expenditure (capex) of around Rp 300 billion to fund residential housing expansion in Tangerang and its surrounding areas.

Thirty percent of the capex will come from internal capital, 30 percent from bank loans and the remaining from sales proceeds.

Residential Projection

The company launched the Vienna cluster, its residential project, in May in Kota Modern. The Rp 210 billion cluster is comprised of 253 houses and lots which are sold for Rp 450 million to Rp 750 million per unit.

PT Lippo Cikarang Tbk (LPCK) has also launched the Oakwood cluster, which is part of the Elysium Residence Megacluster, in May. In the first phase, the company will build around 83 residential units on an eight hectare land.

Syukurman Larosa, Head of the Marketing and Sales Division of Lippo Cikarang, said that this cluster is aimed at the middle income segments with a sale price between Rp 800 million to Rp 1.1 billion per unit.

He said that the rapid development in recent years increased the demand for Lippo Cikarang's residential projects. “This is supported by other factors such as complete facilities, the Water Boom Lippo Cikarang family recreational center and the development of an interchange in Km 34,700 which will become an alternative access route to Lippo Cikarang,” he said.