Excerpts from analyst's report

Liu_JinshuVoyage Research analyst:
Liu Jinshu (left)

Roxy Bucks the Trend:
In spite of 2014 being a challenging year for the property market, Roxy managed to sustain growth to report a 10th consecutive year of record earnings, While revenue fell by 14% year-on-year to S$317.8m, S$54.9m of contribution from associated companies, including its investment in Hong Kong, led the company to report full year net profit attributable to shareholders of S$96.7m.

Since 2013, Roxy has embarked on a series of projects in Malaysia, Australia, Hong Kong, Japan and Thailand whilst judiciously slowing land purchases in Singapore.

Eyeing Opportunities in Singapore and Australia: Roxy has previously emphasized that the Singapore market will remain a key priority. At the results briefing, the company explained that they have spotted certain sites worth looking at in Singapore. That said, it remains prudent and seeks to acquire land at conservative prices, to ensure a reasonable buffer of safety.

Over in Australia, the company has hired a local staff to oversee and seek new projects. This move follows the previous set up of a joint venture to develop and own a chain of hotel development opportunities in Australia. The first site under the joint venture is the hotel development land parcel at 609 Wellington Street in Perth's central business district.

centropod2.15Centropod @ Changi achieved TOP in Jan 2015.
NextInsight file photo.
Forecasts: In our updated earnings forecasts, we estimate that Roxy will earn revenue of about S$342.8m in FY15, of which S$141.4m will be due to Centropod@Changi. The construction of Jade Residences, Whitehaven, LIV on Sophia and LIV on Wilkie are expected yield another S$133.5m in revenue. 

We assume that the company will be able to fully sell its existing properties. The company will most likely take another 1.6 years to fully sell these properties, barring any worsening of conditions in the property market. Hotel ownership revenue is assumed to be flat, while property investment income should increase to S$12.0m on full year contribution by No. 59 Goulburn Street in Sydney, Australia.

Gross margin is expected to improve from 30% in FY14 to 38% in FY15F due to the higher margin profile of Centropod@Changi. However, share of associates' profit is projected to decline from S$54.9m in FY14 to S$13.7m in FY15F, in the absence of contribution from the Russell Street, Hong Kong project.

As we do not project any fair value gains, FY15F EBIT is estimated to be about S$114.8m versus S$119.4m in FY14. After accounting for finance costs, tax, and minority interests for LIV on Sophia and LIV on Wilkie, we estimate FY15F PATMI to be S$82.1 rn, which will result in a still impressive return on common equity of 19.5%.


FY16F FY18F Forecasts: In this update, we veered away from a three year forecast horizon to add in forecasts up to FY18F, This is to mainly factor in contribution from the Kuala Lumpur, Malaysia project in FY18F. Share of associates' profit is projected to be S$31.5m in FY18F. We also allowed hotel ownership revenue to grow by 5% in each of FY16F and FY17F, to partially factor in contribution from the completion of the hotel/resort projects in Japan and Thailand. We intend to revise these forecasts when further clarity is available.

Currently, these two projects are held at cost and may provide some revaluation surplus on completion. We estimate annual capex of S$15rn in FY15F and FY to factor in the development costs of these two projects. In our valuation, we also assign a 20% premium over their land costs to factor in the development upside on the completion of the hotel and resort respectively.

While FY16F and FY17F PATMI are estimated to be about S$39m annually, we highlight that these forecasts are based on Roxy's existing pipeline and do not take into account future new projects.

During FY14, Roxy recorded positive net operating cash flow of S$177.0m, while net gearing fell to 58.3% of adjusted NAV, compared to 68.2% at the end of 2013. Net gearing is projected to fall further to about 50% in FY15F, Therefore, we can ascertain that Roxy has adequate financial strength to add more new projects to its portfolio.

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