Roxy-Pacific Holdings Limited

Transcription

1 2Q16 results update 19 September 2016 Current Price Unrated S$0.450 Fair Value S$0.540 Up / (downside) 20.0% Stock Statistics Market cap S$537.0m 52-low S$ high S$0.500 Avg daily vol 44,223 No of share 1,193.4 Free float 22.2% Key Indicators ROE % ROA % P/ANAV 0.57 Net gearing 1.2 Major Shareholders Teo Hong Lim 60.4% Kian Lam* 49.6% Tjandrawati & Sutianto 5.8% *Kian Lam Investment Pte Ltd is majority owned by members of the management, including Mr. Teo Hong Lim Source: Bloomberg Liu Jinshu Historical Chart 0 09/15 11/15 01/16 03/16 05/16 07/16 (+65) jinshu.liu@nracapital.com Returning to Land Acquisitions in Singapore Announced S$44.2m of acquisitions in last one month. Roxy announced the acquisition of 7,685 sq. ft. of land for S$11.0m at Jalan Eunos on 14 September, following the proposed acquisition of 30,745 sq. ft. of land at Pasir Panjang Road for S$33.25m on 31 August. These moves follow the maturing of Roxy s investments in Australia where it is in the process of selling launched units and considering the sale of one of its office blocks. We highlight that Roxy s progress billings have started to grow again, suggesting that the property development business is potentially bottoming. Sydney projects have been well received in spite of purchase curbs. During March and June, Roxy launched two out of three of its Sydney projects to achieve S$76.5m of attributable pre-sales as of 21 July. Octavia, Killara is nearly 90% sold, in spite of new restrictions against foreign purchasers, suggesting strong domestic demand for Roxy s projects. Foreign property sales now account for more than half of reported new presales at the end of each quarter. Investments in Sydney office sector getting interest from buyers. As for its office properties in Sydney, Roxy has received bids close to A$150m for 59 Goulburn Street, translating to a paper gain of close to A$28.5m which will be realized on any sale. Office property prices in the Sydney CBD have been rising with assets transacting at up to A$17,143 per sqm. The bids imply a required gross income yield of 6.7% for 59 Goulburn Street. Based on a similar capitalisation rate, Roxy s 50% stake in 117 Clarence Street may also provide an attributable gain of about S$10.4m. Return to fundamentals in Singapore. In Singapore, Roxy has returned to the acquisition of choice freehold sites in favourable locations. Straits Mansions (formerly known as Sea Avenue) is such an example. As of last week, about 12 out of 25 units have been sold. As of 21 July, overseas sales have pushed Roxy s attributable progress billings higher by 6% from S$341.8m as of 25 April to S$363.3m as of 21 July. Including Straits Mansions, progress billings would have been S$383.3m or 12.1% higher. The uptick in progress billings is significant as it implies that property development revenue may have reached a bottom in 2016 or Hospitality business presents some risk. Our concern over Roxy now is how its hotel ownership business will be affected by lower tourist arrivals to Singapore (in light of the Zika cases in Singapore and supply of rooms). In our model, we have factored in a 15% drop in average daily room rates and a drop in hotel ownership gross margin to 59% in On balance, we are of the view that Roxy s businesses are performing up to expectations. However, we continue to be conservative and refrain from providing a rating at this juncture. Key Financial Data (S$ m, FYE Dec) F 2017F 2018F Sales Gross Profit Net Profit EPS (cents) EPS growth (%) PER (x) Adjusted NAV/share (cents) DPS (cents) Div Yield (%) Source: Company, NRA Capital forecasts

2 Results Comparison FYE Dec (S$ m) 2Q16 2Q15 yoy % 1Q16 qoq % chg chg Revenue Operating costs EBITDA EBITDA margin (%) Depn & amort EBIT Interest expense Interest inc & fair value gains NM NM Associates' contrib Exceptionals Pretax profit Tax NM Tax rate (%) Minority interests NM Net profit EPS (cts) Source: Company, NRA Capital Results largely in line with expectations. Roxy reported an encouraging set of 2Q16 results. Pre-tax profit of S$27.25m was driven by S$18.3m of fair value items and interest income. Conversely, the company made S$13.5m pre-tax in 1Q16 against a net loss of S$0.67m from fair value items and interest income. The difference was mainly due to higher revenue contribution from lower margin development projects such as Trilive. However, our analysis suggest that Roxy s earnings may potentially have bottomed out in 2016, with overseas contribution helping to generate a measured earnings recovery from 2017 onwards. Foreign pre-sales exceed Singapore pre-sales. What s interesting is that Roxy has started to sell its overseas projects since the beginning of 2016 and these projects have generated S$130.6m of pre-sales during the year until 21 July. Domestic or Singapore projects on the other hand accounted for only S$85.4m of pre-sales in As a result, progress billings to be recognized as revenue or income from 3Q16 onwards has recovered by about 6.3% to S$363.3m as of 21 July, reversing the trend of lower progress billings owing to the slow Singapore market. Most of the Singapore projects will likely TOP within the next 12 to 15 months, with the exception of Eon Shenton and Trilive. Following the completion of these lower margin projects, we can expect the higher margin overseas projects to commence contribution from late 2017 onwards. Figure 1: Attributable Pre-Sales and Progress Billings S$m Jul Oct Feb Apr Jul-16 Singapore Overseas Progress Billings S$m Source: Company, NRA Capital page 2

3 Setting low expectations for 2H16. The crux of the issue is that Roxy will have to sell the remaining 17 units at Whitehaven (WH) and LIV on Wilkie (LIVW) within the immediate 12 months to avoid paying for ABSD, and subsequently Qualifying Certificate extension charge. Over the last 12 months, Roxy sold about eight units at these two projects. Hence, the pace of sales will pick up once these projects are completed, likely within this year for WH and by first half next year for LIVW. The last few units of each project are typically harder to sell, especially for larger units or properties at more expensive locations. LIVW s historical average selling price (ASP) is about S$2,459 per sq. ft., while the largest units at WH are about 1,800 sq. ft. to 1,900 sq. ft. in size. To be conservative, we have marked down our input ASPs for the remaining units to fire sale prices S$950 psf for WH and S$1,800 psf for LIVW. Fortunately, LIVW and WH are about 80% and 96% sold. Our lowered selling prices work out to about S$10m less revenue for Roxy and we expect both projects to remain profitable for Roxy. As for Sunnyvale Residences and Trilive, the company has approximately another 24 months to sell the remaining 12 and 77 units respectively to avoid incurring additional charges. Based on the existing pace of sales at both properties, Roxy should be able to clear these properties in time and we do not have to assume significantly lower ASPs for these two projects. Figure 2: Singapore Projects with Unsold Units % Ownership % Sold as of 21 July 2016 Est. Purchase Date Est. No of Units Left Est. Floor Area Left Est. No of Units Sold in Preceding 12 Months Eon Shenton Residential 20% 96% 9-Apr ,953 1 Whitehaven - Residential 100% 96% 18-Oct ,117 2 LIV on Wilkie - 13,209 sq. ft. Nov-12 90% 85% LIV on Wilkie - 9,324 sq. ft. 3-Jan ,008 6 Sunnyvale Residences 100% 60% 25-Jun ,835 5 Trilive 85% 64% 30-Sep , Straits Mansions (26 Sea Avenue, sales commenced July 2016) 100% 40% 30-Sep , Source: Company, NRA Capital Figure 3: Ongoing Singapore Projects Sales and ASP Estimates Realized Residential ASP (S$ psf) Projected Residential ASP (S$ psf) % Owned GDV Pre-Sales Projected Sales Est. Completion Sunnyvale Residences 100% ,475 1, % Trilive 85% ,564 1, % LIV on Wilkie 90% ,459 1, % LIV on Sophia 90% % sold 2,367 NA 83.4% Whitehaven 100% , % Jade Residences 100% % sold 1,651 NA 90.1% EON Shenton 20% ,313 1, % GDV= Pre-sales + Projected Sales. Est. Completion = Revenue recognised up to 2Q16 divided by total pre-sales. Realized ASP = Pre-sales divided by floor area sold based on URA caveats. page 3

4 New Projects Show Return to Fundamentals Our review of Straits Mansions, Jalan Eunos and Harbour View Gardens shows that Roxy is reverting to small projects with compelling selling points, e.g. freehold tenure and proximity to amenities such as MRT station. These features should help to provide take up for Roxy s projects. Straits Mansions. Within Singapore, Roxy has two unlaunched sites, excluding Straits Mansions whose sales started in July this year. In its first month, Straits Mansions sold about 12 out of 25 units at a relatively high ASP of S$1,746 psf. We reckon that the freehold Straits Mansions commands a premium due to its compelling location nested in the middle of schools, shopping malls and several MRT train stations. We estimate that Straits Mansions will likely command a gross margin of about 21% on a sales value of S$48.3m. Figure 4: Location Map of Straits Mansions Source: Company Figure 5: Financial Estimates for Straits Mansions Est. Net Saleable Area (sq. ft.) 28,094 Other costs % interest exp over 3 years -4.0 ASP (S$ psf) 1,719 Gross profit 10.2 Sales value Opex - 7% of sales -3.4 Land cost Tax - 17% -1.2 Construction cost - S$450 psf Net development value 5.6 Est. Construction 3Q17 Est. Completion 1Q20 The location of 100% owned 178, 180, 180A, 182 and 184 Jalan Eunos which was acquired in November 2016 appears less attractive compared to Straits Mansions. However, its freehold tenure offers a strong selling point when compared to the new 99-year Euhabitat located right next to it. Given that units at Euhabitat are being marketed at S$1,380 to S$1,400 psf, we are of the view that Roxy may be able to sell a significant proportion of the units at prices of around S$1,450 psf, compared to a land cost of S$802 psf over estimated net saleable area of 31,400 sq. ft., based on 90% of the maximum gross floor area of 34,889 sq. ft.. Roxy is also looking at acquiring an adjacent plot of state land to further lower the average land cost of this project. Likely, we will adjust our assumptions if and when this state land is acquired. page 4

5 Figure 6: Location of 178, 180, 180A, 182 & 184 Jalan Eunos 178, 180, 180A, 182 and 184 Jalan Eunos Source: Google Maps Figure 7: Financial Estimates for Jalan Eunos (Pending Launch) Est. Net Saleable Area (sq. ft.) 31,400 Other costs % interest exp over 3 years ASP (S$ psf) 1,450 Gross profit 5.14 Sales value 45.5 Opex - 7% of sales Land cost Tax - 17% -0.3 Construction cost - S$350 psf Net development value 1.62 Est. Construction not available, estimated at 4Q17 Est. Completion not available, estimated at 3Q19 Roxy announced the acquisition of Harbour View Gardens ( A Pasir Panjang Road). on 31 August. Based on 90% efficiency over maximum gross floor area, we estimate net saleable area of 38,739 sq. ft., translating to a land cost of S$858 psf. Across the road, larger units at the Icon@Pasir Panjang were sold for approximately S$1,200 in We noticed that Harbour View Gardens faces a public car park that Roxy can acquire to lower its average land cost. Secondly, the Pasir Panjang port terminal is located behind Harbour View Gardens, across West Coast Highway. Longer term, the redevelopment of the Pasir Panjang area provides capital upside potential for properties in the area. For now, we exclude this property from our model, pending further moves by Roxy to either lower average land cost or raise property value, e.g. plot ratio revision. Figure 8: About Harbour View Gardens Tenure Freehold Land Area (sq. ft.) 30,745 Plot ratio 1.4 Purchase price Floor Area Cost (S$ psf) Maximum GFA (sq. ft.) % Efficiency (sq. ft.) % Efficiency (sq. ft.) Source: Company, NRA Capital page 5

6 Figure 9: Location Map of Harbour View Gardens Harbour View Gardens Car Park Source: Google Maps Sydney Property Prices Probably Rose in 3Q16 Lending curbs led to subdued prices in 4Q15 and 1Q16. Following our 27 January report on Roxy, subsequent data released by the Australian Bureau of Statistics (ABS) shows that residential property prices in Sydney fell by 1.6% during 4Q15. We have stated in our report then that home prices likely fell in November and December 2015 due to lending curbs imposed by the local authority, but we also pointed out that prices will likely continue to rise owing to low supply. ABS later reported that Sydney home prices fell by 0.7% in 1Q16, while CoreLogic RP reported that prices rose by about 2% during the same period of time. 1 The variance is likely due to methodology and sample set differences, but suggest a mixed scenario across different parts of the market. Prices resumed climb over During 2Q16, Sydney again led price growth with a 6.8% quarter-on-quarter increase based on CoreLogic RP data, with yearto-date price growth of 11.3%. 2 The high pace of growth reported by CoreLogic RP suggests that ABS will likely also report positive 2Q16 residential property price growth later this month on 20 September. The momentum appears to be continuing through 3Q16 with CoreLogic RP reporting positive month-on-month price growth of 1.3% in July and 1.4% in August. In general, the data released since our January report validates our view of the Sydney residential property market. To some extent, robust investment demand has also kept prices high in spite of additional lending curbs that have since been implemented page 6

7 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% 3.1% 1.6% Figure 10: Residential Property Price Growth 8.9% 4.7% 3.1% 2.0% 0.4% 0.9% 1.3% 1.6% 0.2% -1.6% 2.0% 1.6% 0.3% -0.7% -0.1% 2.2% -0.2% -0.4% Sydney (ABS) Brisbane (ABS) Average (ABS) Sydney (CLRP) Brisbane (CLRP) Average (CLRP) ABS = Australia Bureau of Statistics, CLRP = CoreLogicRP. ABS publishes a quarterly Residential Property Price Index, while CLRP provides daily and monthly Home Value Index. As the 2Q16 and 3Q16 ABS data are unavailable, the CLRP data provide an indication of conditions during these two periods. Aug-16 refers to the two month period of July and August CLRP data is obtained from the respective monthly press releases. We focus on Sydney and Brisbane as these are cities where Roxy has existing projects for sale. 6.8% 3.8% 2.7% 1.9% Mar-2015 Jun-2015 Sep-2015 Dec-2015 Mar-2016 Jun-16 Aug-16 Source: ABS, CoreLogic RP, NRA Capital But headwinds may slow price growth. In our January report, we have also highlighted several risks, namely lending curbs by banks and worsening affordability in Sydney. 3 Since April, four of the major Australian banks have stopped lending to foreign property buyers without domestic income. 4 Moreover, some state governments in Australia have started charging stamp duty on foreign purchasers. In New South Wales, foreign purchasers will be subject to a 4% surcharge starting from June 2016 and an additional 0.75% land tax from 2017 onwards. Queensland, where Brisbane is located, will impose a 3% surcharge from October, on top of existing duty of 5.75%. Based on recent data, prices in Sydney seem to have remained robust in spite of these measures while prices in Brisbane have dropped during July and August, following a 2.2% climb in 2Q16. Figure 11: Number of Dwelling Unit Approvals, Excluding Houses 140, , ,000 80,000 60,000 40,000 20, Jan-Jul 2015 Jan-Jul 2016 NSW QLD Rest of Australia Source: ABS, NRA Capital gpso1k/ page 7

8 On the other hand, the supply of completed apartments will likely tick up in 2017 and Dwelling unit approvals, excluding houses (e.g. apartments), grew by 41% to 42,949 units in New South Wales in In turn, these units will likely be completed around On the other hand, these approvals represented about 1.5% of residential stock at the end of 2014, thus new builds, excluding houses, roughly matched population growth. Secondly, building approvals (excluding houses) grew by just 1.0% in the first seven months of On balance, we see these headwinds as having the effect of slowing price growth in Sydney. However, any prolonged period of lower prices is not that likely as building approvals have slowed in 2016, thus giving the market time to absorb future supply in Sydney. The larger risk is that of higher stamp duties as prices continue to climb. Roxy s launches in Sydney have sold well on domestic demand. Roxy has launched Octavia, Killara at 6A-8 Buckingham Road, Upper North Shore Sydney in March. As of 21 July, 79% of the units have been sold over a period of four months, at higher than expected prices with each unit fetching approximately S$1m. On a proportionate basis, the property thus has an estimated gross value of S$43.4m, against our previous estimate of A$40m. As such, we revised our estimated net development value for Octavia from A$4.38m to S$5.7m. The Hensley at Bayswater Road, Potts Point, Inner Sydney City, was launched in June and was 60% sold in about two months. The pace of sales was faster than that of Octavia, but selling prices were within expectations at S$1.58m per unit, implying a gross development value of S$70.7m, similar to our estimate in January. At these rates, both projects will likely be fully sold within six months to a year. In comparison, projects in Singapore take two to three years to sell. The relatively fast pace of sales is encouraging. According to the company, the majority of buyers at these two projects are locals who are not subject to higher stamp duties and certain lending curbs. Any slowdown in Sydney to benefit Brisbane? In Brisbane, Queensland, Roxy has a 40% owned project New World Towers (NWT) whose Tower 1 was about 34% sold as of 21 July to cumulate in S$39.75m of gross progress billings at a relatively low rate of S$0.62m per unit. There is some suggestion that investors may look towards cities such as Brisbane and Adelaide as higher prices in Sydney and Melbourne reduce both affordability and return. 5 Residential property prices in Brisbane grew by 4.2% in 2015, as opposed to 13.9% in Sydney. However, prices fell by about 0.4% in Brisbane during July and August this year. Hence, the trend in Brisbane is less stable. Accordingly, we set more conservative assumptions for NWT and assume ASP of A$700 psf for NWT. Last outstanding Sydney development site to be launched. Roxy s Australia land bank of unlaunched site now comprise of Glebe Apartments in the western part of Sydney inner city and 54 & 85 Bracks Street, North Fremantle, in Perth, Western Australia. The Stage 2 development applications for Glebe Apartments and its showroom are currently under exhibition until 10 October and 15 September respectively. This means that Glebe Apartments will likely be launched in November or December, barring further design amendments in response to local feedback after exhibition. Glebe Apartments is designed for locals that desire near city living and we estimate more affordable selling prices of about A$1,170 per sq. ft. The 489,288 sq. ft. 54 & 85 Bracks Street site that is 20.2% owned by Roxy is pending rezoning and Roxy is expected to potentially double its investment of S$12.8m on confirmation. For simplicity, we assume that Roxy will make about S$7.2m from this site in 2018, after deducting for 20% costs and 30% tax gqtkda page 8

9 Figure 12: Financial Estimates for Octavia, The Hensley, New World Towers and Glebe Octavia, Killara The Hensley New World New World Glebe Glebe Tower 1 Tower 2 Apartments A Apartments C Location Sydney, NSW Sydney, NSW Brisbane, QLD Brisbane, QLD Sydney, NSW Sydney, NSW % Owned by Roxy 100% 100% 40% 40% 100% 100% No of residential units No of commercial units NA 1 550m 2 NA NA NA % Sold 79% 60% 34% Unlaunched Unlaunched Unlaunched Total net saleable area 47,382 38, , , ,254 73,131 Progress billings NA NA Est. GDV ASP (S$ psf) 916 1, ,193 1,193 Land cost Construction cost Construction cost (S$ psf) Other costs Gross profit Opex - 7% of sales Tax - 30% of PBT Net Development Value Attributable to Roxy Estimated Completion We assume that NWT and Glebe Apartments will be split into two phases. The number of units for NWT and Glebe Apartments are obtained from their respective Development Applications A and D/2016/1109. AUDSGD exchange rate is generally assumed at 1.02 SGD per AUD. ASP for Octavia and The Hensley are based on progress billings divided by the product of number of units sold and average floor area per unit. The ASP for NWT is based on assumed average prices in Brisbane. The ASP for Glebe is obtained from our January 2016 report. Construction costs for The Hensley, Octavia and Glebe are obtained from their respective DA. The construction cost for NWT is assumed at S$350 psf, with reference to which provides an estimate of A$3,290 before GST per sqm for the highest end units. Other costs are generally computed as interest cost of 3.98% per annum over 2.5 years on the cost of the project. Other operating expenses have been set at 7% of sales. Office Investments May Reap Faster Rewards Strong demand for office property. Data compiled by Savills indicated that A$8.7 billion of office properties in the Greater Sydney area were sold during the 12 months ended 30 June. The CBD area accounted for approximately half or A$4.6 billion of transactions. We tracked five major transactions within the CBD area and noted that selling prices generally ranged from A$11,701 per sqm at George Street (1.7km north of 59 Goulburn Street) and A$17,143 per sqm at 65/77 Market Street (800m north of 59 Goulburn Street). The trend is also consistent with our previously articulated view of tight supply bolstering prices and yield. In comparison, Roxy s 100% owned 59 Goulburn Street and 50% owned 117 Clarence Street are valued at A$6,260 and A$7,045 per sqm as of 30 June Hence, the high transacted values of properties in the CBD area suggest that these two assets may yield substantially higher pay offs to Roxy once they are disposed. Have received bids for 59 Goulburn Street. To this extent, Roxy has announced at the end of July that it has received bids of close to A$150m for 59 Goulburn Street, valuing the property at A$7,729 per sqm. While negotiations are ongoing, the bids provide the basis for 59 Goulburn Street to be revalued higher, and we have factored in a revaluation gain of about S$28.2m in FY17, especially if Roxy received the Stage 2 development application approval next year. Based on the price of A$150m (S$153m) and S$10.3m estimated annual income, the implied yield for 59 Goulburn Street is about 6.7%. 117 Clarence Street. As of 30 June, occupancy at 117 Clarence Street has rebounded from 76% as of 31 March to 94%, while the estimated annual gross income has fallen from S$7.5m to S$7.3m, likely due to exchange rate differences. Roxy will likely continue to hold this property for yield in the immediate term. Working backwards against a required rate of return of 6.7%, Roxy s share of 117 Clarence Street may potentially be worth S$54.48m. page 9

10 Forecasts and Valuation Estimated GDV of S$1.54 billion. Excluding Harbour View Gardens, 54 & 85 Bracks Street and Jalan Kramat Raya No 110, Jakarta, we estimate that Roxy s ongoing and future development projects to have an attributable gross development value of S$1.5 billion, of which S$950.2m of properties have already been sold. We estimate unsold and unlaunched properties to have an attributable sales value of S$589.3m. Workings and estimates are shown in Figure 13. The excluded projects are mainly land bank sites with development plans yet to be finalized. Jalan Kramat Raya No 110, Jakarta is 49% owned by Roxy and was acquired for an attributable cost of S$3.3m. Currently, Roxy plans to develop this site into a 110-unit commercial development. We plan to study this site and incorporate this project into our model in a subsequent report. The challenge is that this project entails a new market that we would prefer to study in detail before committing to forecasts. Figure 13: GDV Estimates across Projects Gross Projected Sales Realized ASP (S$ psf) Projected ASP (S$ psf) % Owned Gross GDV Gross Pre- Sales % revenue recognition Sunnyvale 100% ,475 1, % Trilive 85% ,564 1, % LIV on Wilkie 90% ,459 1, % LIV on Sophia 90% % sold 2,367 NA 83.4% Whitehaven 100% , % Jade Residences 100% % sold 1,651 NA 90.1% Straits Mansions 100% ,746 1, % 178 & 180A Jalan Eunos 100% 45.5 NA 45.5 NA 1, % Octavia, Killara 100% NA % The Hensley 100% NA 1, % Glebe Apartments - Building A 100% NA NA 1, % Glebe Apartments - Building C 100% 87.3 NA NA 1, % Associated Projects EON Shenton 20% ,313 1, % Wisma Infinitum - Tower 1 47% % Wisma Infinitum - Tower 2 47% NA NA % New World Towers - Tower 1 40% NA % New World Towers - Tower 2 40% NA NA % Grand Total Attributable Sales 1, Estimated net development value of S$136m. After deducting for costs, we arrived at an estimated net development value of S$136m, of which about S$91.6m has yet to be recognized as profit. The bulk of these projected profits or S$58.4m is expected to arise from overseas projects, thus showing that Roxy s geographical diversification strategy is about to yield results. page 10

11 Figure 14: Cost and Profit Estimates across Projects Land cost Constructio n cost (S$ psf) Construct - ion cost Minority interest Est. NDV NDV to be recognized GDV Interest Opex Tax Sunnyvale Trilive LIV on Wilkie LIV on Sophia Whitehaven Jade Residences Straits Mansions & 180A Jalan Eunos Octavia, Killara The Hensley Glebe Apartments - A Glebe Apartments - C Associated Projects EON Shenton Wisma Infinitum - Tower Wisma Infinitum - Tower New World Towers - Tower New World Towers - Tower Land Bank Harbourview Gardens 100% owned by Roxy, pending development plans 54 & 85 Bracks Street, Perth 20.2% owned by Roxy, pending rezoning, assume S$7.2m gain in 2018 Jl Kramat Raya No 110, 49% owned by Roxy, pending further analysis and study Jakarta In the case of Roxy, we do not estimate a constant construction cost across projects. If we assume for e.g. a flat S$400 psf for the Singapore projects, some of them will be unprofitable, which is not reasonable in this context. Hence, we generally assume cost of S$350 to S$450 psf for the Singapore projects, depending on their age and positioning, e.g. standard to luxurious condominiums. Figure 15: Key Revenue and Income Estimates and Assumptions FY16 FY17 FY18 FY19 FY20 Property Development Revenue Gross Profit Development Revenue Sunnyvale Trilive LIV on Wilkie LIV on Sophia Whitehaven Jade Residences Straits Mansions & 180A Jalan Eunos Octavia The Hensley Glebe Apartments Hotel Ownership Revenue Gross profit Property Investment Revenue Roxy Square Goulburn Street Rental revenue Fair value gain - 59 Goulburn Street Share of Associates Income EON Shenton Wisma Infinitum - Tower Wisma Infinitum - Tower New World Towers - Tower New World Towers - Tower Rental from 117 Clarence Street Bracks Street page 11

12 Figure 16: Hotel Ownership Revenue Estimates GMRH FY16 FY17 FY18 FY19 FY20 Average Room Rate Average Occupancy Rate 90.0% 90.0% 90.0% 90.0% 90.0% RevPar No of rooms Room Revenue Other revenue Noku Kyoto Average Room Rate Average Occupancy Rate 58.8% 61.7% 64.8% 68.0% 71.4% RevPar No of rooms Room Revenue Other revenue Roxy Resort Average Room Rate Average Occupancy Rate 30.0% 75.0% 75.0% RevPar No of rooms Room Revenue Other revenue Roxy Maldives Resort Average Room Rate Average Occupancy Rate 50.0% 70.0% 75.0% 75.0% RevPar No of rooms Room Revenue Other revenue Figure 17: Group Revenue and Net Profit Estimates FY15 FY16 FY17 FY18 FY19 FY20 Revenue Gross profit Other income Distribution and selling expenses Administrative expenses Other expenses Finance costs Share of results of associates Profit before tax Tax PAT PATMI MI Figure 17 shows that we expect Roxy to make net profit attributable to shareholders of S$39.5m in 2016, followed by S$40.4m in profitability will likely be driven by anticipated fair value gains from the revaluation of 59 Goulburn Street to S$150m. In turn, FY18 profitability is expected to rise to S$41.4m on completion from associated projects such as Wisma Infinitum and Bracks Street. page 12

13 In this update, we have made relatively little mention of the hotel ownership business which is expected to contribute about 37% of FY16 gross profit. We are mindful that the average daily room rate at the Grand Mercure Roxy has fallen by 8.5% year-on-year to S$157.2 in 2Q16. For 2H16, we expect room rates to drop by 15% year-on-year while occupancy rates remain at about 90.3%. However, contribution from Noku Kyoto is expected to lead to sustained revenue growth of 11.8% in Strategically, we see that Roxy is attempting to scale up its hotel ownership business with the development of its own chain of hotels in Phuket, Japan and Maldives. Valuation. Based on our updated assumptions, we derive a RNAV of S$1.06 billion for Roxy or S$0.890 per share. This RNAV takes into account the development upside of Roxy s pipeline, excluding Harbour View Gardens and Jalan Kramat Raya No 110, Jakarta. We have done relatively little work or have limited visibility over the profitability of these two projects right now. Secondly, we have not revalued those hotel projects that are currently under development, but rely on the revaluation surplus as provided by the company in its results announcement. Compared to Roxy s reported adjusted net asset value (which excludes development gains and revaluation gains from the Sydney office properties) of S$ per share, our estimated RNAV carries a 12 cent premium. We next discounted Roxy s RNAV by 40% to S$647m or S$0.540 per share. We have previously discounted Roxy s RNAV by only 30%. The 40% discount is consistent with our treatment of another Singapore property developer. Potential catalysts may arise from any decision to sell 59 Goulburn Street, which will help to streamline its balance sheet and free up resources for more development projects. Since our last update, Roxy s share price has fallen from S$0.490 to S$ Our valuation implies an upside of 20%. Figure 18: Valuation Remaining NDV of properties Rezoning gain from Bracks Street Goulburn S$7,884 psm Less book value Clarence psm x 50% Less book value (S$88.2m x 50%) Revaluation surplus of hotels Book value of common equity RNAV 1, Discount 40% Discounted RNAV No of shares 1, Value per share Current share price Upside 20.0% page 13

14 Profit & Loss (S$ m, FYE Dec) F 2017F 2018F Revenue Operating expenses EBITDA Depreciation & amortisation EBIT Net interest income & fair value gains Associates' contribution Exceptional items Pretax profit Tax Minority interests Net profit Shares at year-end (m) 1, , , , , Balance Sheet (S$ m, as at Dec) F 2017F 2018F Fixed assets Investment properties Other long-term assets Total non-current assets Cash and equivalents Development properties Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders' funds Minority interests NAV/share (cents) Total Assets Total Liabilities + S holders' funds Cash Flow (S$ m, FYE Dec) F 2017F 2018F Pretax profit Depreciation & non-cash adjustments Working capital changes Cash tax paid Cash flow from operations Capex Net investments Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Dividends paid Others Cash flow from financing Change in cash Change in net cash/(debt) Ending net cash/(debt) KEY RATIOS (FYE Dec) F 2017F 2018F Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Effective tax rates (%) Net dividend payout (%) ROE (%) Free cash flow yield (%) Source: Company, NRA Capital forecasts page 14

15 NRA Capital Pte. Ltd ( NRA Capital ) has received compensation for this valuation report. This publication is confidential and general in nature. It was prepared from data which NRA Capital believes to be reliable, and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. No representation, express or implied, is made with respect to the accuracy, completeness or reliability of the information or opinions in this publication. Accordingly, neither we nor any of our affiliates nor persons related to us accept any liability whatsoever for any direct, indirect, special or consequential damages or economic loss that may arise from the use of information or opinions in this publication. Opinions expressed are subject to change without notice. NRA Capital and its related companies, their associates, directors, connected parties and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add or dispose of or may be materially interested in any such securities. NRA Capital and its related companies may from time to time perform advisory, investment or other services for, or solicit such advisory, investment or other services from any entity mentioned in this report. The research professionals who were involved in the preparing of this material may participate in the solicitation of such business. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the duties of confidentiality, available on request. You acknowledge that the price of securities traded on the Singapore Exchange Securities Trading Limited ("SGX-ST") are subject to investment risks, can and does fluctuate, and any individual security may experience upwards or downwards movements, and may even become valueless. There is an inherent risk that losses may be incurred rather than profit made as a result of buying and selling securities traded on the SGX-ST. You are aware of the risk of exchange rate fluctuations which can cause a loss of the principal invested. You also acknowledge that these are risks that you are prepared to accept. You understand that you should make the decision to invest only after due and careful consideration. You agree that you will not make any orders in reliance on any representation/advice, view, opinion or other statement made by NRA Capital, and you will not hold NRA Capital either directly or indirectly liable for any loss suffered by you in the event you do so rely on them. You understand that you should seek independent professional advice if you are uncertain of or have not understood any aspect of this risk disclosure statement or the nature and risks involved in trading of securities on the SGX-ST. page 15