Roxy-Pacific Holdings - DBS Research 2018-08-01: All Eyes On New Launches

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ROXY-PACIFIC HOLDINGS LIMITED SGX:E8Z

Roxy-Pacific Holdings - All Eyes On New Launches

• Roxy-Pacific Holdings’ 1H18 net profit fell 35% y-o-y on lower contributions from development and investment properties (due to divestments).
• Sales take-up was > 70% for 3 launches in 1H18.
• To launch 5 more projects in 2H18 as planned.
• Declared interim dividend of 0.195 Scts.

Maintain FULLY VALUED; Target Price of S$0.40.

• We maintain our rating on Roxy-Pacific (Roxy) at Fully Valued and Target Price of S$0.40 based on a 55% discount to RNAV.
• We believe the surprise move by the authorities in hiking ABSD rates and tightening mortgages (just over a year after the authorities relaxed the policy measures) will hit buyer sentiment significantly.

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Where we differ. Buyers’ sentiment impacted but small and nimble Roxy could still benefit.

• Despite the strong sales take-up rates of its property launches thus far, we believe the change in buyer sentiment would still have an impact Roxy-Pacific’s new property launches. Although its sites are smaller, Roxy-Pacific still has quite a few projects which are scheduled to be launched in 2018 / 2019. Being nimble in times like this is a plus.

Potential catalysts: Property sales remain strong despite recent cooling measures.

• Roxy-Pacific’s 1H18 net profit fell on lower contribution from development properties; strong sales take-up before cooling measures. 1H18 net profit fell 35% y-o-y to S$13m, 33% of our FY18F estimates, mainly due to lower revenue from development properties and investment properties (due to divestments), lower fair value gains from investment properties (S$3.5m in 2Q18 vs S$28.5m in 2Q17), offset by higher share of associates’ results (+56% y-o-y) from fair value gains of 117 Clarence Street.
• Sales take-up rates of 3 residential projects launched in 1H18 were strong at > 70%. Management remains on track to launch 5 more developments in 2H18 (FY18 target of 8 launches).

Valuation: 

• Maintain FULLY VALUED. Our Target Price of S$0.40 is based on a 55% discount to RNAV.

Key Risks to Our View: 

1. Slower take-up rates,
2. Government regulates more to manage the Singapore property market,
3. AUD / NZD / JPY forex fluctuations, and
4. acquisitions of less desirable investment properties.

WHAT’S NEW - All eyes on new launches

1H18 net profit fell 35% y-o-y largely from lower development profits and lower contributions from investment properties:

• Roxy-Pacific’s 1H18 net profit fell 35% y-o-y to S$13m, 33% of our FY18F estimates, mainly due to lower revenue (- 42% y-o-y), lower fair value gains from investment properties (S$3.5m in 2Q18 vs S$28.5m in 2Q17), offset by higher share of results from associates (+56% y-o-y) on the back of fair value gains recognised from 117 Clarence Street, with the SPA agreement to sell the office building signed on 25 June 2018. Excluding fair value gains, 1H18 PBT grew 25% y-o-y to S$13m.
• Lower revenue was largely from development properties (- 53% y-o-y) mainly due to completion of older residential projects, and investment properties (-35% y-o-y) as a result of loss of income following the disposal of 59 Goulburn Street. This was mitigated by higher revenue from its hotel assets (+18% y-o-y) such as newly acquired hotels in Japan and the partial opening of the resort in Maldives.
• Roxy-Pacific’s 2Q18 net profit fell 57% y-o-y to S$6m, mainly from lower revenue (-52% y-o-y), lower fair value gains from investment properties, offset by higher share of results from associates (+19% y-o-y) from the recognition of fair value gains of 117 Clarence Street.
• 1H18 gross profit margin improved to 31% from 21% in 1H17, led by
  1. better margins of 19% on its development properties (vs 12% in 1H17) mainly from Straits Mansions and Trilive, and
  2. change in portfolio mix which is now skewed towards hotel properties (as revenue from development properties has dropped), which has higher gross profit margin.
• However, we noted that margins from hotel properties and investment properties fell marginally.
• Roxy-Pacific declared an interim dividend of 0.195 Scts vs 0.214 Scts in 1H17. Despite the lower dividend per share, total dividend payout remains relatively stable at S$2.6m mainly due to 10% bonus share issued in Apr18.

Unrecognised sales stood at S$605m as at 1H18:

• As at 1H18, Roxy-Pacific’s unrecognised sales stood at S$605m from S$459m as at FY17, largely from its Australia properties (57%) which are expected to be completed in 2018 / 2019, and Singapore properties (31%).

Take-up rates of > 70% from 3 property launches in 1H18.

• Roxy-Pacific launched 3 properties in 1H18 out of its target of 8 property launches in FY18, before the government announced the new cooling measures. All 3 properties achieved strong take-up rates of more than 71%. Despite the cooling measures, management will continue to launch its properties in 2H18 as planned (remaining 5 properties).
• Upcoming launches in 3Q18 include Bukit 828 (Upper Bukit Timah), RV Millenia (River Valley) and Arena Residences (Guillemard Lane). While the cooling measures could impact its sales take-up rates, its smaller sized developments (between 34 to 140 units) may have less risks.

Noku Maldives partially opened in Dec17, target to be fully opened by Sep18.

• Noku Maldives started operations in Dec17 and expects to be fully operational by Sep18. Its soft opening was well received and has maintained strong occupancy despite ongoing renovations. Its hotel in Phuket is targeted to open in FY19.
• Noku Kyoto and Noku Osaka are contributing healthy recurring income.

Maintain Fully Valued; Target Price of S$0.40.

• We maintain our Fully Valued rating and target price of S$0.40. We continue to believe that the surprise move by the authorities in hiking ABSD rates and tightening mortgages (just over a year after the authorities relaxed the policy measures) will hit buyer sentiment significantly. While Roxy-Pacific’s sites are typically smaller in size and reducing its risks compared to the larger sites, Roxy still has quite a few projects to be launched in 2H18 /
• 2019 which could still be impacted by slower sales volume and buyer sentiment. Key potential turnaround catalysts are
  1. strong sales take-up rates despite the measures;
  2. acquisition of good-quality investment properties; and
  3. change in government policies.
• Roxy-Pacific currently trades at 1.1x FY18F P/BV, close to -1 standard deviation of its historical range. At its trough, Roxy traded close to 0.9x P/BV.

Rachel TAN DBS Group Research Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2018-08-01

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