ROXY-PACIFIC HOLDINGS has reported record revenue and profit for 1H2013 -- but the best is yet to come.
There are a couple of key drivers for the business, as one could have gleaned from the company's financial statements and a results' briefing last Friday:
1. Near-term jump in earnings
The second half of the year is set to see a bumper harvest, as the company will recognise at one shot the revenue and profit attributable to a commercial project, the Wis@Changi, as CEO Teo Hong Lim confirmed.
The revenue from Wis@Changi alone will amount to $78.3 million.
Compare that with the property development revenue of $99.4 million achieved in 1H by Roxy-Pacific.
The group's total revenue was $122.6 million (+35% year on year) while net profit was $31.4 million (+17.1% year on year).
By accounting rules, revenue and profit from commercial projects are recognised only when they have received Temporary Occupancy Permit (TOP) status, which will happen in either 3Q or 4Q for Wis@Changi.
Roxy's net asset value per share stood at 28.9 cents as at end-2Q while its adjusted NAV (after taking into account a revaluation surplus for the Grand Mercure Roxy Hotel) was 68.79 cents.
Taking it further, OCBC Investment Research estimates the RNAV currently to be $1.08 per share. In comparison, the stock recently traded at 68 cents, or a 37% discount.
2. Multi-year earnings visibility: Over and above the Wis@Changi contribution, Roxy-Pacific will have lots of revenue to book from its other projects. Its progress billings from 15 property development projects stood at $1.1 billion as at July 24, 2013, which will be recognised from 3Q this year till FY2017.
This is equivalent to 8X the property development revenue achieved in the entire year of 2012.
Put another way, Roxy has property development revenue to book over the next four years which annually will amount to, on average, twice as much as last year's.
OCBC Investment Research has forecast $381.1 million in total group revenue for FY13, up 100% year-on-year. (The revenue figure includes contributions from Roxy-Pacific's hotel and property investments).
OCBC's net profit forecast is $78.0 million, up 33.8% year-on-year.
In FY14, the pace hots up with another commercial project scheduled to achieve TOP in 2H -- Centropod@Changi. This is a bigger project with revenue of $150.4 million to be recognised in one pop.
(For residential projects, the revenue and profit are recognised according to the progress of the construction of the projects.)
3. Landbank: Roxy-Pacific has four sites in Singapore and one in Kuala Lumpur. The Singapore sites were bought for $700-850 psf ppr, which Mr Teo said could translate into sale prices that are among the most affordable for freehold sites in the future.
He expects the gross margins to be lower than for its past projects given the current cautious investor sentiment and reduced affordability as a result of tightening measures introduced by the government.
The four sites in Singapore have a total attributable gross floor area of 258,241 sq ft for development. The Kuala Lumpur site has an attributable GFA of 328,397 sq ft -- ie, it single-handedly exceeds the aggregate attributable GFA of the 4 Singapore sites. (Attributable GFA relates to Roxy's stake in a project, ranging from 45% to 100%)
Mr Teo gave a run-down on each of the sites:
a. Currently Harbour View Gardens, Pasir Panjang Road: There will be a Court of Appeal hearing this month on whether the en-bloc sale can proceed after the High Court refused to allow it in April.
Roxy and its JV partners bought the site for an attractive effective land cost of $730 psf ppr. If the sale is given the green light, the project could be launched in 1Q next year. Roxy is optimistic about buyer response as there is no other developer holding freehold landbank in Pasir Panjang. This reflects a key strategy of Roxy -- buy land and develop projects where there is not too much competition.
b. LIV on Wilkie: This project is likely to be launched at the end of this month, making it the only launch by Roxy for the rest of the year. Buyer response is also expected to be positive given that Roxy's nearby project, LIV at Sophia sold out in within one month recently.
c. Lorong K, Telok Kurau: "We are going to try some unique features," said Mr Teo. A challenge in the area (and a few other areas) is the 100-sqm rule introduced in Nov 2012 which stipulated that the maximum number of homes that can be built is based on an average unit size of 100 sqm. This is to deter developers from producing shoe-box units of 50sqm.
d. Currently Yi Mei Garden: Bought at $856 psf ppr, this site will be redeveloped into a high-rise freehold condo, one of only a few such developments in the Kovan area.
e. KL site: This is Roxy's first overseas project. Roxy (47% stake) is partnering Macly, a JV partner for the Harbour View Gardens project and some past projects. The freehold land cost an unbelievably low RM128 psf ppr (S$51), and the construction cost is likely to be close to RM400 psf. The target selling price of the homes is RM1,100 psf. Most of the 600-700 units will be 600-sq ft SOHO units. The location is good as it is near the to-be-revitalised Quill City.
4. Hotel: Executive director Chris Teo said renovation of the rooms was completed in June, and a number of big suites were converted into smaller ones. The lobby of the hotel will be renovated over two months from this month.
Last month (July), the average occupancy rate was above 90% (up from 83.8% in 2Q2013) but room rates have dipped.
5. Dividends: Roxy is likely to continue upping its dividends with rising profits and cashflow. Cashflow from operations are set to swing from -$2.1 million and -$72.4 in 2011 and 2012, respectively, to $58.6 million and $255 million in 2013 and 2014, respectively, according to OCBC.
This reflects the increasing number of projects reaching TOP and the higher percentage of payments collectable when the TOP is awarded and the sale and purchase is completed.
Mr Teo sees no lack of development opportunities in this stage of the property cycle, so the rising cashpile and the newly-established S$200-million multicurrency medium term note programme will enable Roxy to seize opportunities as and when they are available.
The interim dividend just declared is 0.77 cent a share, up from 0.67 cent a year earlier. (The final dividend for FY12 was 0.924 cent a share).
Roxy-Pacific's Powerpoint presentation materials can be found at the SGX website.