Roxy-Pacific Holdings - OCBC Investment 2018-11-01: Not Ready To Turn The Corner Yet


Roxy-Pacific Holdings - Not Ready To Turn The Corner Yet

  • 1 more Singapore launch this year.
  • Too early to call the bottom.
  • Lower Fair Value of S$0.41.

Lack of contribution from property development

  • Roxy-Pacific’s (Roxy) 3Q18 revenue was down 69% y-o-y to S$18.8m, on the back of lower revenue from the group’s Property Development and Property Investment segments.
  • Similar to 2Q18, the group saw lower revenue recognition from Trilive (TOP in June 2018) and absence of revenue recognition from Jade Residences, Whitehaven and LIV on Wilkie following their completion in 2017. Revenue from the group’s Property Investment segment fell 34.5% y-o-y, largely due to the sale of 59 Goulburn Street in Oct 2017.
  • On the flip side, the group’s Hotel Ownership segment clocked a 10.1% y-o-y revenue increase, mainly due to contribution from Noku Osaka which was acquired in Oct 2017 and higher revenue from Noku Maldives after its full operation in Aug 2018.
  • 3Q18 saw gross profit margin jump 13%pts to 36%, but this was mainly due to higher contribution from the Hotel Ownership segment.
  • 3Q18 PATMI grew 175% y-o-y to S$4.4m, due largely to the write-back of tax provision for an associate.

Watching its land bank and leverage

  • Roxy has ~7 projects yielding 702 units in its Singapore development land bank, of which it plans to launch one site for sale in 4Q18 and another 3 sites in 1Q19. Following the cooling measures announced by the government in July, we believe that Roxy has turned more cautious with its launches for FY18, cutting down from 8 projected launches in its 1Q18 announcement to 5 launches in its 3Q18 announcement.
  • While Roxy’s share price has corrected ~13.2% on a total return basis since we downgraded the stock, we think it might still be too early to call the bottom.
  • Apart from the lack of a re-rating catalyst (that plagues the sector in general), we note that Roxy’s leverage is much higher than that of its peers. Net gearing as at end-3Q18 is 145.6%, increasing from 139.6% in 2Q18, with ~37% of total debt from development loans on unsold units or yet-to-be-launched projects. We reflect this, coupled with our cautious outlook on FY19 residential prices in our higher RNAV discount rate, which has increased from 35% to 40%.
  • Thus, we revise our fair value from S$0.44 to S$0.41.

Joseph Ng OCBC Investment Research | 2018-11-01
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.41 DOWN 0.440