OXLEY: How its strong cashflow will soon pare down its gearing further

Oxley Tower: 100% sold for more than S$500 million. Oxley has reserved 12 units for rental to F&B outlets. NextInsight file photo.The fruits, big and juicy, are ready for harvest: Oxley has some S$1.9 billion worth of projects that will achieve TOP in FY17 (July 2016 - June 2017).

In particular, two major projects will bring in a huge cash harvest into Oxley's coffers, which it will use to reduce its gearing.

These two projects will also play starring roles for Oxley to achieve, according to RHB Research, record profit in FY2017.

One of the two is Oxley Tower in Robinson Road, which is 100% sold and is expected to achieve TOP by the end of this year. 

As a commercial property, its revenue and profit can only be recognised upon TOP.

In one fell swoop, Oxley Tower will contribute more than S$500 million to Oxley's topline in FY17 (ending June 2017). 

Royal Wharf in London: Phase 1 will contribute £500 million (S$894 million) revenue in FY17.
Artist's impression.The other project is the first phase of Royal Wharf in London.

Oxley plans to hand over 1,200 units to buyers between 3Q16 and end-June 2017, resulting in a recognition of revenue of £500 million (S$894 million).

(There is little risk of cancellation since Phase 1 was sold at £550 psf while subsequent Phases 2 and 3 were at higher prices. Phase 1 buyers can easily sell in the open market for a profit, instead of letting Oxley take back the apartments and their 20% cash deposit).

"We are on track to clear this, and from next year, the trend of increasing borrowings will reverse." -- Eric Low, deputy CEO of Oxley Holdings, at the recent FY16 results briefing Photo: Sim Kih

The cash inflow will amount to about £400 million (S$715 million), or 80% of the revenue as 20% has been collected upfront from buyers. 

This cash inflow will add to the S$551 million of cash sitting on Oxley's balance sheet as at end-June 2016. 

In a nutshell, over the next 12 months, Oxley said it expects to achieve TOP for S$1.9 billion worth of projects (including King Albert Park Residences, Oxley Tower and The Flow).

And this will underpin a record year for Oxley in FY17 with net profit of $350-360m, according to a RHB Research report.

In addition to the S$1.9 billion of revenue to be recognised in FY17, Oxley has an unbilled contract value of S$1.1 billion.

Deputy CEO Eric Low with Executive Chairman & CEO Ching Chiat Kwong.
Photo by Leong Chan Teik
On the debt side, Oxley has secured debt of S$931.7 million and about S$467.3 m of unsecured debt due in FY2017.  

"We are on track to clear this, and from next year, the trend of increasing borrowings will reverse," said Oxley deputy CEO Eric Low at a recent FY16 results briefing. 

RHB Research, noting that Oxley’s net gearing has fallen from 2.7x to 2.3x in the last 12 months, projected this to decline to 1.5x by end FY17.

As this progresses (gearing down, cash balance up, profit up), the market -- which has been concerned about Oxley's gearing -- could turn more positive about the stock.