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Saturday, 27.04.2024, 00:01
LHV says Merko's robust growth may be replaced by decline in 2019
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"The second quarter results of Merko were somewhat better than expected, mainly as a result of
successful sale of apartments and the company's own development projects. In
addition, results are supported by major ongoing projects. Merko will keep going rather strong until the end of this year, but
from then onwards the picture is not that nice at the moment," Danil told.
"The addition of new contracts has been relatively weak
for several quarters and the order portfolio has been declining for three
quarters in a row. If things go on this way, the company's sales may
decline substantially next year compared with this year," Danil said.
The LHV senior analyst said that competition among general
contractors is very intense and subcontractors are putting pressure on margins.
"If Rail Baltic materializes after all, the start of
that project will probably change the state of play in the entire Baltic
market, but until that happens tensions will remain. In the coming years Merko maybe will have to rely on its own
property developments even more," he added.
Merko Ehitus saw
its revenue for the first six months of 2018 increase 43 percent year over year
while its profit for the period more than doubled. The volume of new
construction contracts in the first half-year was lower than the volume of
works performed, and the secured construction order book shrank.
In the first six months of 2018, the group entered into new
contracts worth altogether 67.5 mln euros, including construction works on
Hundipea port, Tsirguliina substation and phase II of the Tallink office building. As of June 30, 2018, the Merko Ehitus Group's secured order book
amounted to 247 mln euros, compared with 387.5 mln euros at the end of June
2017.
Revenue totaled 183.7 mln euros in the first six months of
the year, up from 128.8 mln euros in the same period a year ago. Net profit
totaled 6.9 mln euros, compared with 3.2 mln euros in the first six months of
2017. Net profit for the second quarter grew 155 percent to 5.7 mln euros and
revenue was up 46 percent at 103.3 mln euros.
Andres Trink, CEO
of AS Merko Ehitus, said in his
comments on the interim result that due to a rise in the construction input
prices and tight competition on the general contracting market, it was not a
goal in itself to raise construction volumes, and the company was focusing on
the quality of construction services and improving profitability.
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