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


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's 2HFY20 Results

Poor results as expected, given 7 Aug 20 guidance.

  • 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.

COVID-19: Construction delayed but sales impact muted.

  • 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%).

MTN bond of S$480m (due 21 Apr 21) repayment ability explained, despite net gearing climbing to 2.48x (+28ppt y-o-y).

  • 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.

Divesting non-core assets; renewed focus on development projects.

  • 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.

Oxley - Valuation & Recommendation

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