Damac Properties said first quarter net profit plunged 45 per cent as the cost of sales mounted for the Dubai-based real estate developer.
Net income in the first three months of the year fell to Dh483.9 million from the year-earlier period, the company said in a regulatory filing with the Dubai Financial Market, where its shares are traded. The earnings came in below the average Dh650m estimate of analysts polled by Bloomberg. Damac shares closed 0.43 per cent higher to Dh2.31 in broadly positive trade in Dubai with DFM General Index climbing 1.1 per cent.
The cost of sales during the quarter rose to Dh1.13 billion from Dh887.3m reported at the end of the same period last year. The company reported revenue of Dh1.89bn below analyst estimates of Dh1.92bn.
The Dubai-based investment bank Arqaam Capital said that Damac’s 27 per cent drop in off-plan sales in the first three months of year to Dh1.6bn was broadly in line with market trends. The company, Arqam said, is likely to fall short of the full-year 2018 sales target of Dh7bn as the combination of Ramadan and summer months is likely to soften sales in the second and third quarters.
“We believe that 2018 will be a challenging year for pure home builders in the UAE as home ownership weakens across the primary market,” Arqaam said in a note to clients after Damac released its earning.
Damac in February reported a 25 per cent drop in its full year net income to Dh2.76bn. The Egyptian investment bank EFG-Hermes at that time noted that the operational and financial challenges are expected to put pressure on Damac this year. Cash flow issues at the company are likely to push the dividends lower and the company may have to raise debt to meet Dh2.2bn in repayment obligations over the next 24 months, the investment bank said.
However, despite the weaker-than-expected profit and revenues amid sluggish sales in Dubai, the company’s chairman said he was upbeat about longer term prospects of the real estate market of the emirate which has faced headwinds in recent years on the back of softer economic growth.
“Dubai’s property market continues to attract investors from around the world, thanks to .... the emirates’ global appeal as one of the safest, happiest and fastest growing cities in the world,” Hussain Sajwani said.
“Dubai continues to expand on its proposition as a leading destination for tourism, business and investment, with ongoing infrastructure development leading up to Dubai Expo 2020. Dubai remains one of the world’s most attractive places to live and work, which ultimately delivers long-term benefit to the real estate sector as a whole,” he noted.