CEO sees higher margins, lower risk
The listed contractor Pre-Built Plc is focusing more on the property development business as it offers higher margins and lower risk than construction, and plans to launch three projects worth a combined 1 billion baht per year.
CEO Chaiyarat Thampeera said the gross margin from property development was at least 30%, three times the margin in construction. Net profit margins are 15-20% and 3-5% respectively.
“The construction business is larger by value but smaller by profit,” he said. “The worst risk a contractor like us always faces is that a last payment [from a project owner] cannot be collected.”
Pre-Built (PREB) listed on the Stock Exchange of Thailand in 2005 and saw a chance to diversify into development in 2008 when it acquired a land plot of 300 square wah in Soi Ruam Ruedee.
Founded and wholly owned by Pre-Built with registered capital of 40 million baht, Built Land Co Ltd is its development arm. Pre-Built plans to raise the registered capital in the subsidiary next year as it aims to be aggressive in the new business.
Mr Chaiyarat said the company planned to launch a new condominium, The Tempo Phaholyothin, next month. The eight-storey building would occupy 304 square wah plot on Phahon Yothin Soi 2, with 78 units worth 370 million baht.
He said demand in the location was good from real buyers and not speculators, so units would be quite large, from 40-130 square metres with prices around 80,000 to 100,000 baht per sq m.
Currently, the project has pre-bookings of 20%. The company expects to sell 90% of the units this year and market the rest after construction is finished at the end of 2011 when it can raise prices.
The company plans to transfer units at its first project, The Tempo Ruam Ruedee, by the fourth quarter this year. The 382-million-baht building with 79 units has eight remaining for sale at higher prices. Current resale prices are now between 110,000 and 120,000 baht a sq m, up from 95,000 baht when the project was launched last year.
“We will focus on low-rise condominiums as they have higher profit and lower risk than high-rise ones. It’s easier to sell a smaller number of units as a project with many units requires more time to close sales,” he said.
The company is looking at some plots in the Silom area for a future project and plans townhouses and single houses in the near future, possibly in Bang Bua Thong and Rattanathibet.
Mr Chaiyarat is no stranger to property development. He was one of the three founders of Asian Property Development (AP), along with Anuphong Asavabhokin and Pichet Vipavasuphakorn.
In 1995, they set up U-Home Co Ltd to develop condominiums on Sukhumvit 77 with precast construction technology. But the projects failed as buyers at the time did not accept precast construction and the property bubble was close to bursting.
“Now everyone accepts precast construction. We will use our strength in this technology to do property development,” said Mr Chaiyarat, who is still an AP director.
He said the company’s business model was like that of the country’s largest developer, Pruksa Real Estate, also a contractor-turned-developer.
However, Pre-Built will not abandon construction because “when the property development business is down, we have the construction business to support us”, said Mr Chaiyarat.
The company expects 2.5 billion baht in revenue from construction and one billion baht from property development in 2011. It plans to spend 500 million baht to buy land next year.
In the second half of 2010, it will enter bids for construction projects worth 2-3 billion baht.
In the first half, Pre-Built had revenue of 600 million baht from construction and 180 million from PCM Construction Materials, a subsidiary that produces pre-stressed floor planks.
To date, it has seven projects on hand with a total construction value of 2.6 billion baht, half of which will be realised by the end of the year. Pre-Built expects to generate at least 2 billion baht by the end of the year.
Pre-Built shares (PREB) closed on Friday on the SET at 2.72 baht, up two satang, in trade worth 885,000 baht.
Source : bangkokpost.com
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