Excerpts from DBS Group Research report
Analysts: Carmen Tay & Rachel Tan
|Riding on residential tailwinds
• One of the largest land banks with a substantial residential portion of c.4,000 units to be launched over 2018/2019
• Strong sell-through rates and execution of its overseas ventures to alleviate concerns that financials are stretched
• Trading at 54% discount to RNAV; fair value of S$0.68
Strong pipeline of residential profits. After a 5- year hiatus, Oxley returns to Singapore with a bang, amassing a substantial residential land bank of nearly 4,000 units worth c.S$3.0bn in attributable gross development value (GDV).
With tailwinds from an improved residential market, strong sell-through rates for its projects when launched over 2Q18-2019 could drive its share price higher.
Outside Singapore, Oxley Towers KLCC and Deanston Wharf could contribute an additional c.S$1.3bn when launched and sold.
Potential unlocking of Singapore hotel assets, which could fetch bids of S$1.2m a key. The keen competition for hotel assets could offer an opportunity for Oxley’s recently completed Novotel and Mercure hotels, estimated at c.S$910m (S$1.2m/key), which we believe is not reflected in the share price.
Addressing its high leverage of 2.1x should instil investor confidence. Oxley’s high debt-to-equity ratio of 2.1x stands out among peers, which means that the group needs to remain nimble and maintain a quick-asset-turn strategy.
The group’s high debt levels will not put it in good stead in the event of an external shock or a slowdown in property sales momentum as it could undermine profits.
Potential higher interest costs upon refinancing of its bonds in 2019/2020 could mean that a quick-asset-turn strategy has to be employed in this current property market upcycle. Potential asset sales in Singapore and the UK will further strengthen its balance sheet.
Trading at c.50% discount to RNAV. Our RNAV of S$1.05 is derived after revaluing Oxley’s existing investments and development projects. After imputing a 35% discount to RNAV (vs 10% discount for large-cap developers), we arrive at a fair value of S$0.68.
Key risks include 1) execution of project launches, 2) policy risk, and 3) rising gearing levels and interest costs in a rising rate environment.