Excerpts from UOB KH report
Analysts: Peihao Loke & Nicola Ho
|Impeccable Track Record
Oxley trades at an attractive 52% discount to our S$0.72 RNAV (0.9x P/B), fromundue “overhang” of cooling measures and gearing concerns.
The group also had a demonstrable 22%ROE (peer average: 7%) in 2014-18, enabled by its fast turnaround, astute landbankingand leverage.
Resume coverage with BUY and target price of S$0.50, pegged at a 30% discount to RNAV.
• Strong earnings visibility from diversified base; spreads out local regulatory risks. Oxley Holdings (Oxley) has a diversified earnings base with S$3.9b of S$7.5b in secured development sales yet to be collected, spread across Singapore (56%), the UK (15%), Ireland (15%), Cambodia (11%), Malaysia (2%) and Indonesia (1%); this can help the group balance the risk of changes in local government measures.
• Singapore residential sales (c.63% sold) to remain stellar, thereby transferring holding risk to buyers. As of end-Sep 19, Oxley had sold about 63% of its 2,226 attributable units (total: 3,814 units/est. GDV: S$4.86b).
Management expects Singapore residential sales to reach 70% by end-19 (and sell out completely in 12-15 months).
Upcoming nearby rival launches (eg Sengkang Grand Residences, Royal Green) are also expected to draw new buying interest to Oxley’s more attractively-priced projects.
• Gearing concerns overblown; to subside on project completions and potential hotel sale. Net gearing has declined steadily (from high of 6.22x in FY10) to 2.05x inFY19.
Much less appreciated is Oxley’s high cash flow visibility from S$3.9b unbilled sales (vs S$3.1b net debt).
Of this, unbilled sales from overseas projects (S$1.7b), likeRoyal Wharf, Dublin Landings, The Peak, are proven in terms of revenue recognition andcash collection.
The remaining S$2.2b Singapore progress billings are unlikely to see drop-offs (ie given the progressive payment scheme where 20% of purchase price is committed at the point of booking a unit).
Amid signs of growing investor interest, cap rates for Singapore hotels also compressed to 3.25% (vs 4.5% a year ago), based on valuers’ input in their FY19 annual reports.
Land tenure of Novotel & Mercure Singapore on Stevens has also been converted to freehold, which will further increase its appeal to buyers.Management may revisit the sale of Novotel & Mercure Singapore on Stevens (totalling 772 rooms, 11 commercial units) with an indicative valuation of S$1.053b in 2020 if there are good offers, as the supply situation is expected to tighten on the back of more regional events in even years (eg 2020 and 2022).
• Re-initiate with BUY. We re-initiate coverage on Oxley with BUY and a target price of S$0.50, based on a 30% discount to RNAV of S$0.72/share.
Full report here