Oxley Holdings - UOB Kay Hian 2020-09-01: 2HFY20 Streamlining ‘Non-Core’ Assets

OXLEY HOLDINGS LIMITED (SGX:5UX)

Oxley Holdings - 2HFY20 Streamlining ‘Non-Core’ Assets

As expected, Oxley reported a weak 2HFY20 due to COIVD-19-related losses from disposal of its Galliard stake and 30 Raffles Place, as well as lower appraised values on investment properties.
The pandemic has impacted construction by 4-6 months in some markets, but less so on project sales. Management envisions a leaner group focused on project development, and is looking to divest non-core assets.
Maintain BUY on Oxley with a lower target price of S$0.37 (previously S$0.48), pegged at a 30% discount to our RNAV.

Oxley Holdings (SGX:5UX) reported 2HFY20 (Jan 2020 to Jun 2020) and FY20 (Jul 2019 to Jun 2020) net losses of S$296.3m and S$280.6m respectively (1HFY20: S$15.7m net profit). This was primarily due to the COVID-19 pandemic resulting in:
1. S$48.7m fair value loss on investment properties in Singapore;
2. S$210m non-recurring losses (from disposal of 18.8% stake in associate Galliard Group, and final completion of share sale for 30 Raffles Place in Jun 20); and
3. S$23.7m unrealised forex losses from US$ EMTNs due to the US dollar appreciation against SGD.
Excluding fair value and non-recurring losses, Oxley Holdings reported S$13.1m net profit for FY20.
Net losses occurred despite revenue growing to S$638.9m (+299%yoy) and S$1,233m (+80%yoy) for 2HFY20 and FY20 respectively. Full-year growth can be attributed to recognitions from projects in Cambodia, Singapore, Ireland, and a 9-month contribution from a wholly-owned subsidiary in Australia.
Oxley Holdings's dividend payout of 1.82 S cents/share in FY20 (+82% y-o-y), representing 8.1% dividend yield (based on S$0.225 closing price). Full-year dividend of 1.82 S cents comprise a final dividend of 1.50 S cents (ordinary: 0.5 S cent, special: 1.0 S cent), and 0.32 S cent interim dividend paid out in Mar 20.

Oxley Holdings's management sees 4-6 months of construction delays at its Singapore, Ireland and Malaysia projects due to the partial lockdown and safe-distancing measures, while the UK and Cambodia projects are expected to complete as planned by Sep 20 and 3Q20/early-21 respectively. UK Royal Wharf remains accessible by workers via private transport due to ample parking spaces on site, while the Cambodia project was spared as there was country-wide lockdown.
Pent-up demand in Singapore post relaxation of circuit breaker measures in early-June, resulted in more than 280 OTPs (S$330m sales) from April to early-Aug 20. Oxley sold 79% of its 3,923 units of Singapore inventory (including commercial units) as of Aug 20. Management sees stable demand owning to its mass-market products, which are less susceptible to the absence of foreign buying due to border closures.
Overseas launched projects are mostly sold, such as Royal Wharf (98%), The Peak (87%) and Dublin Landings (100%), except for The Palms (30%) and Oxley KLCC (28%).

Oxley Holdings repaid more than S$630m of debt from its operating and investing cash flow of S$689.6m, thereby reducing its net debt by S$554.4m in FY20. Net gearing increased, however, which can be attributed to a drop in net equity as a result of fair value losses on the assets in FY20.
For its S$480m bond repayment, management has earmarked proceeds from:
1. Royal Wharf: S$160m (after netting property loan) due to complete by Sep 20 and all units sold by end-20 (currently 98% sold);
2. Dublin Landings: S$80m-100m;
3. The Peak: S$120m which will see its residential and retail components TOP in 2020/early-21;
4. first batch of Singapore projects to TOP in 2021 (assuming 100% sold by TOP); and
5. other asset divestments.

Management opined that the group’s profile is still too “young” to be holding investment properties offering low yields. During the quarter, Oxley Holdings divested its 18.77% stake in Galliard Group, incurring a S$101.6m loss, which were mostly book losses due to recognition on share of profits during its holding period. Actual losses were only estimated £20m, given the sale consideration of £30m (vs original £50m acquisition price in 2015).
Oxley Holdings also completed the final share sale of 30 Raffles Place (Chevron House), receiving S$168.3m proceeds (net of S$38m retention sum). Due to the final selling price of S$315m achieved being lower than S$406m target, it incurred a S$102m accounting loss. In fact, 30 Raffles Place transaction generated S$130m gains and 31% IRR for the group.
Oxley Holdings is also looking to divest a land parcel in Cambodia (c.US$50m), Walker Street in Australia for S$90m (net of loans) and its 10% Aspen stake, pending group’s cash-flow situation.

We raise our net profit estimates for FY21-22 by 27% and 28% respectively after deferring revenue recognition due to construction delays for its Singapore, Ireland and Malaysia projects, deferred start of new construction sites, and trimming occupancies and rates for its hotel portfolio.
Maintain BUY on Oxley Holdings with a lower target price of S$0.37 (previously S$0.48), pegged at 30% o NAV of S$0.52/share (previously S$0.69) which has declined due to the large impairments.
See Oxley Holdings Share Price; Oxley Holdings Target Price; Oxley Holdings Analyst Reports; Oxley Holdings Dividend History; Oxley Holdings Announcements; Oxley Holdings Latest News.
Share price catalyst: Positive newsflow on take-ups and/or handovers for Singapore and overseas projects.

Loke Peihao UOB Kay Hian Research | Nicola Ho UOB Kay Hian | https://research.uobkayhian.com/ 2020-09-01

SGX Stock Analyst Report BUY MAINTAIN BUY 0.37 DOWN 0.480