ROXY-PACIFIC HOLDINGS LIMITED (SGX:E8Z)
Roxy-Pacific Holdings - A Diversified Property Owner & Developer
- We like Roxy-Pacific as a turnaround of results is expected in FY2021, due to profit recognition of projects. Adjusted NAV of $0.72/share is also higher than the current Roxy-Pacific share price. We believe that the possible travel bubbles could also lift hotel management revenue.
- In addition, we also like Roxy-Pacific for their established management and track record since listing in 2008.
Roxy-Pacific - Company Background
- Established in May 1967, Roxy-Pacific Holdings Limited (SGX:E8Z), is an established property and hospitality group with an Asia-Pacific focus, was listed on the SGX Mainboard on 12 March 2008.
- Roxy-Pacific’s business can be categorised into 3 main business segments:
- Property Development,
- Hotel Ownership and
- Property Investment.
- Roxy-Pacific is principally engaged in the development and sale of residential and commercial properties, under their Property Development segment. Roxy-Pacific’s recurring income streams stem from its hotel ownership and property investment business segments, which include its flagship hotel, Grand Mercure Singapore Roxy hotel, self-managed upscale boutique hotels, Noku Kyoto and Noku Osaka, and first self-managed upscale resort Noku Maldives, and other investment properties in Asia-Pacific.
Property Development
- Roxy-Pacific’s residential development projects typically comprise small-to-medium sized residential developments such as apartments and condominiums targeted at middle-to-upper income segments. Between 2004 and 2020, Roxy-Pacific developed and launched 54 small-to-medium sized developments comprising a total of more than 5,000 residential and commercial units in Singapore, Malaysia and Australia.
Hotel Ownership
- Grand Mercure Singapore Roxy hotel, a major asset of Roxy-Pacific, is self-managed under franchise agreement with international hotel operator, Accor Group.
- Beyond Singapore, Roxy-Pacific has opened its upscale boutique hotels under the Noku hotels brand name in Kyoto and Osaka, Japan, and an upscale resort in Maldives. Roxy-Pacific’s second upscale resort in Phuket, Thailand, is targeted to operate in end 2021 – 2022.
Property Investment
- Roxy-Pacific owns 52 retail shops at Roxy Square Shopping Centre in Singapore.
- In Australia, Roxy-Pacific owns a 45% interest in a freehold six-storey commercial building on the fringe of the Melbourne CBD. The Group also owns a 40% interest in a centrally-located, 10-storey commercial building in New South Wales, and a 40% interest in a commercial tower in Melbourne.
- In Auckland, Roxy-Pacific owns NZI Centre and has a 50% interest in the office building at 205 Queen Street.
- In Japan, Roxy-Pacific holds 49% interest in a retail property at renowned retail districts at Shibuya, expanding its hospitality presence in Japan to the retail property sector.
Roxy-Pacific - Investment Highlights
An established property group with Asia-Pacific focus
- Roxy-Pacific’s property development business remains their core segment, making up 83.5% of total revenue in FY2020 (FY2019: 86.9%). Hotel ownership and property investment segments make up 12.7% and 3.7% of total revenue respectively.
- Property development:
- Roxy-Pacific’s property development segment is engaged in the development and sale of residential and commercial properties. The Group’s recent development projects mainly comprise small-to-medium sized residential developments, such as apartments and condominiums targeted at middle-to-upper income segments. Between 2004 and 2020, Roxy-Pacific developed and launched 54 small-to-medium sized developments comprising a total of more than 5,000 residential and commercial units in Singapore, Malaysia and Australia.
- See report attached below for the list of Roxy-Pacific’s current development projects.
- Hotel ownership and Property investment
- Hotel ownership and property investment add to the recurring income of Roxy-Pacific. Total recurring revenue declined 43.8% y-o-y from S$58.1 million in FY2019 to S$32.6 million in FY2020, largely due to the COVID-19 impact on hotel ownership segment (-49.9%). Rental income from investment property was fairly stable (-3.6%).
- Roxy-Pacific manages several hotels, including its flagship hotel Grand Mercure Singapore Roxy hotel in Singapore, Noku Kyoto and Noku Osaka boutique hotels in Japan, and upscale resort Noku Maldives. Its upcoming resort in Phuket, Thailand is scheduled to commence operations in 2021 – 2022.
- The property investment segment generates rental income through equity stakes in buildings spanning across Singapore, Australia, New Zealand and Japan.
- Property development:
FY2020 revenue and earnings took a hit
- Roxy-Pacific posted a revenue of $198.4 million in FY2020, a decline of 55.3% y-o-y from $444.0 million in FY2019. FY2020 revenue took a hit mainly due to lower contribution from the Property Development and Hotel Ownership segments.
- Roxy-Pacific saw a net loss to owners of S$29.5 million in FY2020, down from a net profit of S$30.3 million in FY2019. Net loss was largely a result of
- one-off S$34.6m impairment charge to reflect lower value of the Noku Maldives and Noku Osaka hotels (S$7m),
- additional tax expense on a previous divestment of a Hong Kong property (S$10.1m) and
- impairment charged due to a different valuation basis used on land for New World Towers project (S$8.9m).
- Market value was used to determine the valuation, ie. Willing buyer and willing seller basis, and impairment was provided based on land value using as is basis. However, as the land is intended for redevelopment purposes, rather than to be sold, we feel that this impairment charge may be reversed in the future. This was slightly offset by a S$10.5m gain on divestment of a Japan asset and $5.9m from government grant.
- However, recovery is on the horizon with expected recognition of profit in FY2021. As at 7 February 2021, based on units sold from ongoing development projects, Roxy-Pacific had total attributable pre-sale revenue of $552.1 million, which would see profit recognition from FY2021 to FY2023.
COVID-19 impact
- Roxy-Pacific’s property development projects saw delays during the Circuit Breaker period in 2020. Safe distancing measures also further slowed down construction. However, digital efforts such as bringing showrooms online through virtual showcases have increased its buyer engagement.
- Hotel operations were also affected by the COVID-19 restriction measures which impacted the tourism industry. However, they have a contract up to May 2021, with potential for renewal, with the Singapore government to use its flagship Grand Mercure Singapore Roxy hotel as a Government Quarantine Facility.
- Roxy-Pacific’s property investment arm was relatively sheltered from the impact of COVID-19, with a smaller 3.6% decline in revenue. The slight decrease was due to passing of rental rebates and property tax rebates to tenants in 2020.
Volume and prices of sale of private residential properties in 2020
- Despite COVID-19, the Urban Redevelopment Authority (URA) reported that developers sold 9,982 private housing units in 2020, a 0.7% increase from the 9,912 units in 2019. Private resale transactions spiked 19.9% to 10,729 transactions in 2020, from 8,949 in 2019.
- The private residential property price index also shows that Q4 2020 residential property prices (non-landed) hit the highest levels in a five-year period. Prices soared with high demand amid the low interest rate environment and pent-up demand following the "circuit-breaker" period.
Upcoming development projects
- All the sites in their present land bank had been launched. With emphasis placed on acquiring freehold land, Roxy-Pacific successfully acquired two new sites, which would bring about two new development projects in 2021. The two new projects are located at Guillemard Road (100% interest) and Institution Hill (42% interest).
- In November 2020, Roxy-Pacific entered into an agreement to acquire a freehold residential site at Jalan Molek and Guillemard Road at S$93 million with an estimated total land area of 37,131 sq ft. With 100% interest, Management forecasted a gross development value (GDV) of an estimated S$180 million, with 137 units available for sale.
- In February 2021, Roxy-Pacific announced the entry into an agreement to acquire a 999-year leasehold residential site at 10A and 10B Institution Hill for S$33.6 million. The Group intends to amalgamate the site with another 999-year leasehold site at 11 Institution Hill after it exercises the Option To Purchase issued on 1 February 2021.
- Based on our calculations and assumptions, land cost for 11 Institution Hill is likely to be in the range of S$21.0 million – S$22.5 million. The amalgamated site would have an estimated total land area of 14,300 sq ft with a total gross floor area (GFA) of 40,040 sq ft for residential development. With 42% interest, Management forecasted a GDV of an estimated S$105 million, with 50 – 60 units available for sale.
Roxy-Pacific - Growth Outlook
Property prices may hold up with low inventory and strong demand
- Declining home supply may continue to lift property prices in Singapore.
- According to data from URA, the number of unsold residential units under development declined in Q4 2020 to around 24300. (Q4 2019: 30500). If low supply in the market continues, buyers will continue to drive up prices for existing units.
- Secondly, according to Knight Frank, Singapore is seen as a “safe haven” for high-net-worth individuals to park their investments due to its stable political environment. In a survey by Knight Frank, data revealed that 26% of ultra-high-net-worth individuals from the Asia-Pacific region are planning to buy new homes in 2021, with Singapore being the top of their list in Asia.
- The wealthy are investing in second homes in cities and countries that fit their needs amid the pandemic and the demand could continue to boost property prices in 2021.
Low interest rates
- Due to COVID-19, market interest rates and lending rates have reduced to sub-1% levels, reducing financing costs. This made purchases attractive to property buyers, either for home-owners who can now better afford private property, or for investors seeking higher returns.
- Although interest rates have seen small increases from the trough in 2020 and are expected to continue to rise moderately, rates are still far from pre-Covid levels. The demand for private property seen in 2020 may sustain in 2021 if market interest rate remains attractive at lower than pre-Covid levels.
- See r
See the 14-page report attached below for complete analysis on Roxy-Pacific (SGX:E8Z).
Lim Li Jun Tracy
SAC Capital Research
|
https://www.saccapital.com.sg/
2021-04-07
SGX Stock
Analyst Report
99998
SAME
99998
