Housing construction is still going strong but the high-rise apartment market looks like slowing down, says building materials supplier CSR.
The company behind Gyprock plasterboard, Bradford insulation and Viridian glass generated record earnings from its building products division in the six months to September 30 due to strong growth in residential construction activity.
That contributed to CSR’s 48 per cent growth in half year net profit to $114.5 million.
Managing director Rob Sindel said overall strength in the east coast residential construction market had supported the company’s earnings growth, but warned of a potential slowing in apartment construction.
“While detached housing construction remains robust, high-rise apartment approvals are showing signs of slowing across Australia,” he said.
There’s apartment projects underway everywhere, but the key question is how many will get built or be pushed into future years, Mr Sindel said.
Well located, good quality apartments will sell, but projects in poorer locations may not even begin to be built even if they have approval.
“If you drive around, you’ll see a lot of holes in the ground where the site has been cleared – that is technically a commencement from the council’s point of view,” Mr Sindel said.
“My view is that some of that stuff will never get built because either the banks have pulled out on financing or they haven’t got the numbers.”
Non-residential construction activity is slightly lower due to the timing of large projects, he said, with gains in aged care and education offset by declines in offices and warehouses.
CSR has forecast a lift in annual earnings from its building products division, as current construction indicators and longer lead times from approval to construction have it expecting demand to remain at current levels.
Mr Sindel said land included in CSR’s recently announced acquisition of Boral’s stake in their joint venture brick business would be a game changer for CSR’s property development division, increasing its presence in western Sydney.
CSR said it expects an annual profit before significant items at the top end of analysts’ forecasts of $154 million to $184 million, after a 12 per cent rise in the first half of its fiscal year to $103.1 million.
The company’s shares gained 31 cents, or 8.6 per cent, to $3.91, their highest level in three-and-a-half months.
CSR PROFIT BOLSTERED BY STRONG HOME CONSTRUCTION
- Net profit up 48pct to $114.5m
- Revenue up 8pct to $1.24bn
- Interim dividend up 1.5 cents to 13 cents, unfranked