Stock Commentary: Brown Q3 Earnings Up 68% on Falling Sales, But Lower Costs


Merkado Barkada

November 19, 2021 | 9:11

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. , BRN real estate sales fell 17% yoy to P441 million, agricultural product sales fell 24% yoy to P36 million, and water service revenues increased 7% yoy to P19 million. On the general ledger cost side, BRN’s cost of real estate sales fell 57% to 111 million pesos, the cost of farm products sold fell 57% to 17 million pesos, and the cost of service revenues fell 57% to 17 million pesos. 16% water at 9 million pesos.

So while BRN saw its total revenues drop 17% year-on-year, it also saw its total costs drop 55%, resulting in a 68% gain in net profit over Q3 / 20 performance. BRN said the reason for the decline in real estate sales was a “lower% completion of units sold in this quarter compared to the percentage of completion of units sold in the same quarter last year,” and the reason of the decline in agricultural sales was a “decline in sales.” The reasons given for the huge drop in spending year over year weren’t particularly clear, but from what I can understand, BRN says that because they sold fewer units, they had lower associated development costs, and that for units that were sold, their relative development costs were lower than those of units sold in the prior quarter.

MB RESULT

I applaud any company looking to become more open and transparent with the market, and BRN has recently made strides alongside its drive to increase its visibility and invite new investors into the mix. BRN’s preferential offer period has just started and the stocks are offering a fairly healthy 7% dividend yield. It is a real estate development company taking advantage of what it sees as a huge opportunity in the real estate industry. As an investor, I like the heightened profile. I like the intention of more openness. But I feel like the Management Discussion and Analysis section needs to dig deeper into one or two levels. It is always written at a level of detail that seems calculated to avoid any discussion.

I don’t believe BRN is trying to avoid talking about their plans and business plan, so I don’t understand why we couldn’t understand better why real estate sales were lower. If there was a lower percentage of units completed during the quarter, why was this the case? Are the factors that contributed to this result still present or has management taken action to resolve the issues? Additional details will help investors resolve uncertainties and become familiar with BRN’s business on an ongoing basis. But this shift in approach could be a work in progress, so I’ll be looking at the annual report to see if BRN will step up that part of its reporting game.

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