Excerpts from analyst's report
Artist's impression of Resort at Chalong Bay.
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Strengthens Balance Sheet with Recent Move: As of 31 March 2015, Roxy had S$125.6m of working capital loans, with the remaining borrowings of S$695.7m mainly related to property development projects and investments. The company generated net cash of more than S$60m in 2014, and as such is in a comfortable cash position.
Therefore, we felt that the additional S$60m of borrowings is to allow Roxy to add a new source of financing to its arsenal and to convert more of its debt to fixed rate loans. Such loans accounted for 42% of total borrowings as of 31 March. Adjusted for the newly issued notes, the proportion of fixed rate borrowings will rise to about 46%. More importantly, the additional funds will further enhance the company’s position to take on new opportunities as it continues to expand regionally.
Emerging Asia Pacific Property and Hospitality Group: On 22 June, Roxy announced the acquisition of Jalan Kramat Raya No. 110, Jakarta Indonesia in a 49%/51% joint venture with its Indonesian partners. The consideration for the entire plot of land is about IDR68.12bn or S$6.98m. The land is located in a prime area near several top tier hotels. The land may be developed into a hotel or a commercial property, for ownership or for sale. While the purchase of the land remains conditional, Roxy now has a presence in six countries outside of Singapore, including Hong Kong, Japan, Australia, Malaysia and Thailand. 2015 launches include Peel St & Cordelia St in Brisbane, Australia and The Colony By Infinitum in Kuala Lumpur, Malaysia.
Slide 4 of a corporate presentation uploaded on SGX on 6 July 2015. It illustrates the growing regional presence of Roxy as it embarks on multiple overseas projects. Other than the hotel in Japan, which will be completed in 2015 and commence operations in 2016, the projects – Wellington Hotel in Perth, Peel St & Cordelia St in Brisbane, Australia and the Roxy Resort in Chalong, Phukket, Thailand are expected to be completed in 2017.
We have previously estimated that the Roxy Resort, Japan and Wellington hotels may potentially yield revaluation surplus of S$44.1 m for Roxy on completion. Just to recap, the Wellington Hotel shall be operated under the Marriot Courtyard brand and will likely commence operations in 2017. While the completion of the Roxy Resort is expected to take place in 2017, commencement of operations may be in 2018, based on the disclosures in the presentation slides.
Forecasts and Valuation: In this report, we do not adjust our forecasts and valuation. The company is expected to release its 2Q financial results on 30 July. We will adjust our model then. Accordingly, we do not factor the Indonesian land acquisition into our forecasts and valuation, and continue to value Roxy at S$0.740 per share. We reiterate that Roxy’s share price at S$0.515, less the value of its hotel, office premises and investment properties, is about 1.02 times FY16F EPS of 2.8 S cents. Conversely, our valuation of S$0.740 values the company at 9.06 times FY16F EPS based on the same approach. Moreover , our forecasts are prudent as they are based on Roxy’s existing pipeline of known projects, and do not take into account additional acquisitions over time.
