Oxley Holdings (OHL SP) - UOB Kay Hian 2017-10-03: Back For The Home Run

Oxley Holdings (OHL SP) - UOB Kay Hian 2017-10-03: Back For The Home Run OXLEY HOLDINGS LIMITED 5UX.SI

Oxley Holdings (OHL SP) - Back For The Home Run

  • Oxley is a key beneficiary of Singapore property upcycle, as it has the largest residential landbank among the Singapore-listed property stocks with 2,833 units (S$3.03b GDV). Its diversified earnings base with S$2.46b in secured sales provides earnings visibility. 
  • Gearing concerns will subside with cash flow streaming in and rising recurring income stream (from S$11.3m in 2017 to S$167.1m in 2021). 
  • We resume coverage on Oxley with a BUY rating and target price of S$0.67, pegged at a 20% discount to its RNAV.



WHAT’S NEW

  • Oxley Holdings is poised to benefit from the Singapore property upcycle, as it has the largest residential landbank among the listed property stocks in Singapore with 2,833 units (S$3.03b GDV). 
  • We re-initiate with a BUY rating and a target price of 67 S cents.


STOCK IMPACT


Key beneficiary of Singapore property upcycle. 

  • As a result of its early strategic decision to accumulate landbank in Singapore in FY17, after years of diversifying overseas, Oxley has accumulated the largest residential landbank among the listed property stocks in Singapore with 2,833 units (S$3.03b GDV). 
  • Oxley also showed execution astuteness in grabbing sites on the cheap in this enbloc wave. Its purchase of Serangoon Ville at a land rate of S$835 psf ppr, is about 16% lower than the S$964.80 psf ppr paid by Keppeland-WingTai JV for the nearby Serangoon North site. 
  • Oxley is a key beneficiary of the property upcycle in Singapore deriving about 40% of value (by GAV) here. Every 10% increase in Singapore residential prices would result in a 3% increase in its RNAV.

Diversified earnings base with growing recurring income. 

  • Oxley has a diversified earnings base with S$2.46b out of S$5.44b in secured development sales yet to be recognised, spread across the UK, Ireland, Cambodia, Malaysia, Indonesia, Myanmar, and China. 
  • In addition, Oxley has been growing its recurring income stream from its investment and hospitality properties, which is expected to grow from S$11.3m in FY17 to S$167.1m in FY21. The Space@Tampines is contributing S$11m per year to recurring income. 
  • The hotel properties in Singapore (under Novotel & Mercure brands), when operational from Sept/Oct 17, are also set to contribute S$46m per year.

Gearing concerns to subside. 

  • Oxley’s net gearing has decreased steadily from a high of 6.4x in FY12 to 1.9x in FY17, yielding positive OCF for the first time in recent years of S$328.6m and S$461.3m in FY16 and FY17 respectively. 
  • We expect the company’s net gearing to de-gear further to 1.35x by FY20, as debt is paid down with the completion and handover of development projects. In the next 12 months, we expect some S$1.12b out of S$2.46b in unbilled contracts for development properties to obtain TOP and handover.
  • Some of these projects nearing completion include Floraview/ FloraVista, The Rise@Oxley-Residences, Royal Wharf-Phase 1A & 1B, Dublin Landings-Block D, The Bridge-Phase1 (Residential, SOHO, Retail units). 
  • We also expect Novotel Singapore on Stevens/ Mercure Singapore on Stevens to contribute starting from Sep 17. Billings from the completion of both development properties and hotels that commenced operations in Sep/Oct 17 are expected to enhance cash positions, and decrease net gearing further in the near and medium term.

Largest SGX beneficiary in the Gaobeidian project. 

  • Oxley’s 27.5% stake (the largest among SGX peers, followed by KSH Holdings:22.5%, Lian Beng:10%, Heeton: 7.5%) in Gaobeidian is proving to be a massive jackpot, as it is located just north of the recently announced Special Economic Zone (SEZ) - Xiongan New Area (XNA) - in the likes of Shenzhen. 
  • 31 major SOEs are reportedly planning to develop their businesses in XNA. As a result, Gaobeidian prices have surged from Rmb9,000/sqm to Rmb20,000/sqm with further upside to come as land costs were locked in before the SEZ announcement. For every 10% increase in ASP, we expect Oxley’s profits to increase by S$105.6m or a 2 S cents accretion to RNAV.


VALUATION/RECOMMENDATION

  • Resume coverage with a BUY and target price of S$0.67, pegged at a 20% discount to our RNAV of S$0.84/share. 
  • As Oxley uses an asset-light model for many of its overseas projects, we have factored in only half of the future development profits from these projects, leaving the other half to be factored in once there is greater visibility on execution. 
  • If we factor in the full value, the potential RNAV and target price would rise to S$0.96 and S$0.77 respectively.




Vikrant Pandey UOB Kay Hian | Singapore Research UOB Kay Hian | http://research.uobkayhian.com/ 2017-10-03
UOB Kay Hian SGX Stock Analyst Report BUY Initiate BUY 0.67 Same 0.67



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