Oxley Holdings Limited - CIMB Research 2017-02-07: Visible improvement in gearing position

Oxley Holdings Limited - CIMB Research 2017-02-07: Visible improvement in gearing position OXLEY HOLDINGS LIMITED 5UX.SI

Oxley Holdings Limited - Visible improvement in gearing position

  • Oxley Holdings Limited (OHL) started off as a property developer focused on the Singapore market. Since then, the group has gone global and expanded its product offerings.
  • As at 31 Dec 2016, the group had S$2.60bn unbilled contracts.
  • Other than development profits, the group has started to build recurring income streams in the form of investment properties and hospitality assets.
  • As at 6 Feb 2017, OHL trades at a historical FY6/16A P/BV of 1.77x versus its peer average of 0.59x. OHL’s historical ROE in FY6/16A is 28.1% versus the peer average of 8.6%.


Company background 

  • We met with OHL management on 1 Feb 2017. 
  • OHL was listed on the Catalist Board on 29 Oct 2010 at an IPO price of S$0.38. On 21 Feb 2013, OHL transferred to the Mainboard of the SGX. 
  • OHL started off as a property developer specialising in residential and commercial developments in the Singapore market. Today, the group is involved in residential, commercial and industrial property developments and has ventured beyond the Singapore market.


Key risks 

  • Key risks, according to management, include regulatory and policy risks faced by overseas projects in less developed markets. However, management mitigates these risks by working with carefully-selected partners. 
  • Other risks include exchange rate risk, changes to regulations involving taxes on property sales or foreign property ownership rules, interest rate and ease with which property purchasers obtain credit.


Managements aim to lower gearing and raise recurring income 

  • Given the rising interest rates, management is working to de-gear and intends to explore other asset-light approaches for further expansion in overseas markets. As at 31 Dec 2016, OHL had S$2.60bn unbilled contracts (S$0.49bn in Singapore and S$2.11bn overseas). 
  • Typically, management aims to achieve gross margins of above 30% for its projects. 
  • It also expects recurring income to expand from its portfolio of industrial and hotel assets.


Net gearing ratio has declined 

  • OHL’s net gearing has decreased substantially from a historical high of 5.58x at endFY6/12 to 2.11x at end-2Q17. In FY11-15, OHL registered negative operating cash flow. However, in FY16, operating cash flow turned positive and the trend continued in 1Q- 2Q17. 
  • In 1Q17 and 2Q17, OHL’s free cash generated covered 5.9x and 8.4x, respectively, of cash interest expenses paid.


Historical valuations 

  • As at 6 Feb 2017, OHL trades at a historical FY6/16A P/BV of 1.77x versus its peer average of 0.59x. 
  • OHL’s historical ROE for FY6/16A is 28.1% versus the peer average of 8.6% and its historical FY6/16A average dividend yield is 4.0% versus the peer average of 3.5%


NOT RATED
Target Price: N/A




William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-02-07
CIMB Research SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998



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