Roxy-Pacific Holdings - DBS Research 2018-12-14: The “Grinch” Who Stole Roxy’s Xmas

ROXY-PACIFIC HOLDINGS LIMITED (SGX:E8Z)

Roxy-Pacific Holdings - The “Grinch” Who Stole Roxy’s Xmas

Strong sales and margins from 2018 launched projects with S$0.6bn unrecognised sales to drive future profit.
Building recurring income through acquisition of investment properties in Australia and New Zealand.
Pipeline projects of 600 units to be launched in FY19.
Upgrade to HOLD; lower Target Price to S$0.39.

We upgrade our rating on Roxy-Pacific to HOLD from FULLY VALUED previously and nudge down our Target Price to S$0.39 from S$0.40, based on a 55% discount to RNAV.
Roxy-Pacific is currently trading at below -1.5SD of its historical average. As such, we believe the potential headwinds from new property measures have been substantially priced in.

Despite the strong sales take-up rates for its property launches thus far, with a pipeline of 600 units expected to be launched in FY19, we believe there could be limited positive catalysts given the softening buyer sentiment.
But Roxy-Pacific has shown strong sales take-up from its property launches, thus far, possibly due to its well-located projects on mostly freehold sites.

Given the softer sentiment for Singapore residential properties, Roxy-Pacific continues to build its recurring income through active acquisitions of investment properties. After divesting 117 Clarence St for double its acquisition price in 2016, Roxy-Pacific reinvested in three commercial buildings (two in NSW, Australia and one in New Zealand) for a total of S$117m. The properties are estimated to yield c.5% in Australia and c.6% in New Zealand.

Roxy-Pacific’s unrecognised sales stood at S$0.6bn as at end- 3Q18. Singapore projects comprise 33% of the unrecognised sales, largely from sales achieved from projects launched in FY18 while Australia projects comprise 58%.
In Singapore, Roxy-Pacific successfully launched five residential projects in FY18, of which three projects were launched before the authorities implemented new cooling measures. These projects have achieved sales that ranged from 77% to 98%. As the landbank were acquired early, these projects sit on commendable margins at more than 15%. Its project in Orchard, 120 Grange, was transacted at S$3,100psf and is estimated to have the highest margins.
Two projects were launched post the cooling measures were announced, namely Bukit 828 (Upper Bukit Timah) and Arena Residences (Mountbatten / Kallang). Despite Bukit 828 only achieved 26% sales as at end-3Q18, Arena Residences achieved strong sales with 41% sold during the first weekend of launch and 56% sold to-date despite the weakened sentiment impacted by the new cooling measures.
In Australia, we estimate that majority of the projects are expected to complete by FY19 / FY20. While the projects are almost fully sold, there could be some settlement risks given the tightening of lending.

Given the softer sentiment for Singapore residential properties, Roxy-Pacific continues to build its recurring income through active acquisitions of investment properties.
After divesting 117 Clarence St for almost double its acquisition price in 2016, Roxy-Pacific reinvested in three commercial buildings (two in NSW, Australia and one in New Zealand) for a total of S$117m. The properties are estimated to yield c.5% in Australia and c.6% in New Zealand.

Since 2016, Roxy-Pacific has accumulated 11 pieces of landbank with a total of 900 residential units. As at end-FY18, Roxy-Pacific has a pipeline of six projects with a total of 600 units expected to be launched in FY19.
Management expects to launch another three new projects in 1H19. Despite sentiment continues to soften, we believe the better located freehold sites will still garner interests given its good sales take-up for Arena Residences.

We upgrade our rating on Roxy-Pacific to HOLD from FULLY VALUED previously and nudge down our Target Price to S$0.39 from S$0.40, based on a 55% discount to RNAV. Refer to the PDF report attached for the RNAV details.
We lower our FY18F to FY20F earnings estimates by 30% to 42%, taking into account a slower rate of property sales and divestment of 117 Clarence Street.
Roxy-Pacific is currently trading at attractive valuations at 0.9x FY19F P/NAV, below -1.5SD of its historical average traded during the last property cycle (FY13-FY17). As such, we believe the potential headwinds from new property measures have been substantially priced in.
Despite the attractive valuations, we still remain cautious and see limited catalysts for the stock and sector given expectations of a property market slowdown.

Rachel TAN DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2018-12-14

SGX Stock Analyst Report HOLD UPGRADE FULLY VALUED 0.39 DOWN 0.400