Excerpts from RHB report

Analysts: Jarick Seet & Lee Cai Ling

Initiate coverage on Oxley, a home-grown property developer, with BUY and a TP of SGD0.41, pegged to a 45% discount to our RNAV of SGD0.74. Concerns over its gearing level are overdone, as it should be lowered by key asset sales – especially from Chevron House and its hotels along Stevens Road.

Oxley

Share price: 
31 c

Target: 
41 c

Sturdy profits from its overseas and local projects will also start to flow in, and shareholders could be rewarded by special dividends.


· Likely able to pare down debts despite the market pricing it otherwise. Oxley has SGD2.18bn of debts expiring by 2020. However, the majority comprise property loans, which can easily be refinanced.

There is still SGD2.4bn worth of locally-sold residential units set to be booked into its coffers, and another >SGD900m from the potential value-unlocking of the Stevens Road hotels.

"As such, the market has, indeed, been too focused on its high net gearing and underestimated Oxley’s ability to pare down loans.”


-- RHB report

Only SGD450m of its retail bond needs to be paid by 2020. Meanwhile, Chevron House has been sold for SGD1.025bn – for which it received SGD210m.

In addition, it also has EUR237m coming in 2020, from the Dublin project as well as another USD204m from its development in Cambodia.

· Unlocking value in its key asset, the Stevens Road hotels. The Stevens Road hotels which had a previous offer of SGD950m, is an attractive proposition for potential buyers.

mercure12.17In Dec 2017, celebrating the opening of Mercure Singapore on Stevens: Ching Chiat Kwong, Executive Chairman and CEO of Oxley (second from left), with Eric Low, Deputy CEO of Oxley (third from left). Photo: CompanyThe replacement cost of building a similar hotel in the same area will likely also be north of SGD1bn, due to the surge in development charge required for hotel use, to SGD14,000 per sqm from SGD8,200 in 2017.

The land terms have also been converted into freehold, which will be even more attractive to buyers.

· Deep discount to RNAV coupled with key asset sales and potential special dividends. Management guided that excess cash – after paring down gearing – will be used to reward shareholders with special dividends, if there are no suitable opportunities at that time.

The counter is trading at a deep 60% discount to our RNAV of SGD0.74 (majority of assets are already sold).

We believe that this is an attractive price level, ie close to its 5-year low – as investor sentiment was impacted by property sector cooling measures, as well as the misconception over its ability to repay debts.

This, together with a 8.1% FY20F dividend yield, strong insider buying as well as billions in proceeds coming in the next few years, compels us to initiate coverage on the stock with a strong BUY.

· Key risks include further property cooling measures, and rising interest rates.

Attractive dividend yield of 8.1% accompanied by potential special dividends.
 Management guided that excess cash after paring down gearing will be used to reward shareholders with special dividends, if there are no suitable opportunities at that time.

At current normalised dividends levels, it reflects a yield of 4.8%. We think that these dividends are sustainable – especially with hefty sales flowing in the next few years.

In addition, with the recognition of profits worth over SGD1bn from its overseas and local projects, like SGD275m from Chevron House, we think that the likelihood of a special dividend is high – especially with management being keen to reward shareholders.

Forecasts and Valuation

Jun-17

Jun-18

Jun-19F

Jun-20F

Jun-21F

Total turnover (SGDm)

1,343.0

1,188.6

751.3

3,109.6

1,076.4

Recurring net profit
(SGDm)

218.1

285.0

142.0

468.3

208.7

Recurring
P/E
(x)

4.5

4.5

9.0

2.7

6.1

Dividend Yield (%)

 4.8

 4.8

4.8

8.1

8.1

Source: Company data, RHB


Previously in 2014, its industrial project Oxley Bizhub brought over SGD250m worth of profits, of which SGD0.0348 cents in DPS were distributed (total was over SGD102.6m).

We think that a similar ratio for special dividends could be used for future large profits recognised. We expect DPS to increase to SGD0.025, implying a 8.1% yield for FY20F.


Full report here


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