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Stock Commentary

A Brown Q3 profit up 68% on lower sales, but lower-er costs

Merkado Barkada
A Brown Q3 profit up 68% on lower sales, but lower-er costs

A Brown Company [BRN 0.84 1.18%] Q3/21 profit of P142 million, up 68% from Q3/20 profit of P84 million, and up 164% from Q2/21 profit of P54 million. From a segmented perspective, BRN’s real estate sales were down 17% y/y to P441 million, agricultural goods sales were down 24% y/y to P36 million, and water service income was up 7% y/y to P19 million. On the costs side of the ledger, BRN’s cost of real estate sales was down 57% to P111 million, cost of agricultural goods sold was down 57% to P17 million, and cost of water service income down to 16% to P9 million.

So, while BRN saw total revenues fall 17% y/y, it also saw its total costs fall 55%, resulting in a 68% gain in net profit over Q3/20’s performance. BRN said that the reason for the lower real estate sales was a “lower of percentage of completion of units sold at this quarter as compared to the percentage of completion of units sold for same quarter last year”, and the reason for the lower agricultural sales was “lower sales”. The reasons provided for the huge year-on-year drop in expenses were not especially clear, but from what I can make out, BRN is saying that because they sold fewer units, they had lower associated development costs, and that for the units that were sold, they had lower relative development costs as compared to the units that were sold in the previous quarter.

MB BOTTOM-LINE

I applaud any company that is looking to become more open and transparent with the market, and BRN has made some strides recently alongside its drive to raise its profile and invite new investors into the mix. BRN’s prefs offer period just started, and the shares come with a pretty healthy 7% dividend yield. They’re a real estate development company cashing-up in what they believe to be a huge moment of opportunity in the real estate sector. As an investor, I like the increased profile. I like the intention for greater openness. But I feel like the Management Discussion & Analysis section needs to go one or two levels deeper. It’s still written to a level of detail that seems calculated to avoid discussion.

I don’t believe BRN is trying to avoid talking about its projects and business plan, so it’s confusing to me why we couldn’t get a better understanding of why real estate sales were lower. If there were a lower percentage of completed units in the quarter, why was that the case? Are the factors that contributed to this outcome still present, or has management taken steps to address the issues? Additional details will help investors resolve uncertainty and gain familiarity with BRN’s business on an on-going basis. But this turnaround in approach might be a work-in-progress, so I’ll be looking at the annual report to see if BRN will step up this part of its reporting game.

 

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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.

A BROWN COMPANY INC

PHILIPPINE STOCK EXCHANGE

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