This article was recently published on www.nracapital.com and is reproduced with permission
My initial comments
I first wrote about Oxley Holdings on 6 January 2011. The share price then was about S$0.38.
I liked the hidden potential which if they executed well would give an RNAV of S$0.62 and on a present value basis this would be worth S$0.51.
I was concerned about four things:
a) could they execute the sale of Ubi - their large industrial site in Paya Lebar with more than 1mn sq ft of space
b) could they execute the sale of their two office plots in 138 and 144 Robinson Road
c) the potential overhang from Pre-IPO investors who got their shares at S$0.21 compared to the IPO price of S$0.38 when the moratorium expired
d) their high level of gearing at more than 400%.
It's now 15 months down the road.....what has happened have they executed well ??!!
I am happy to report that management which I found to be dynamic have executed the plans they had articulated to me despite a hostile market viz Government policies which were targetted at cooling the market.
Let's take stock of what has happened this last 15 months:
a) First they have sold almost all their original residential sites which were "shoe box" developments before the Government changed the rules
b) they launched and sold 72% of Ubi (Oxley Biz Hub) and 28% of Oxley Biz Hub 2 - the latter wasnt part of their landbank when I met them in 2011
c) they have launched and sold 79% of 144 Robinson Road
Putting what they have sold to-date - based on their last results handout - Oxley has made sales worth more than S$1.3bn which it will recognise over the next three to four years with margins of around 40%.
They have also bought more land - which they have not launched but if launched and sold at their expected selling price - could generate about S$1.3bn in sales revenue.
But based on what has been sold - we can expect Oxley to recognise more than S$600mn in net profit over the next three to four years on what has been sold. Add this to shareholders funds of S$142mn and we have an NAV per share of about S$0.49.......BUT this won't happen until three to four years time because it cannot recognise the profit and revenue from its commercial and industrial projects until TOP.
If they sell the current unsold landbank at their expected selling price we are looking at another S$1.3bn in revenue and profit of about S$400mn (let's be a bit conservative here compared to the margins from its original landbank).
This would add another S$0.27 to its NAV but because it's not launched and likely to be recognised 4-6 years down the road, I will discount this by 50%.
So we are now looking at an RNAV of about S$0.625......about 20% higher than my target in January 2011. So it's a good medium term investment but investors made need to wait two to three years to enjoy the price appreciation.
Danger areas
a) Gross gearing remains high at about 300-400 percent and any rise in interest rates could see a sharp rise in financing costs.
b) Company has announced that its looking to raise funding in March 2012. I dont know whether this is debt or equity depending on which one it could be either positive or negative for the stock.
c) the low liquidity in the stock. For a company with an issued share base of 1.49bn shares, the trading volume in Oxley is low.....maybe investors are holding on because they know the hidden potential value of the stock but the low trading volume increases exit risks for investors should they want to sell their shares.
Conclusion
On balance, I am happy with what they have achieved this last fifteen months. The value is there from past sales but it would take a few years for the company to announce it and for investors to recognise it.
I expect revenue in FYE June 2012 to rise to about S$140mn from about S$70mn in 2011. Historical valuations are not compelling but if you are prepared to wait another one to two years you could enjoy upside of more than 50% !!! after taking into account their recent land purchases.
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