Roxy-Pacific Holdings Limited

Transcription

1 Company update 29 February 2016 Current Price Unrated S$0.490 Fair Value S$0.575 Up / (downside) 17.3% Stock Statistics Market cap S$584.8m 52-low S$ high S$0.560 Avg daily vol 112,042 No of share 1,193.5m Free float 22.2% Key Indicators ROE % ROA % P/ANAV 0.64 Net gearing 0.90x Major Shareholders Teo Hong Lim 60.4% Kian Lam* 48.7% 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 03/15 05/15 07/15 09/15 11/15 01/16 (+65) jinshu.liu@nracapital.com Staying Nimble Amidst Cycle Low Revenue and earnings +6.8% and +15.5% above consensus. Roxy- Pacific Holdings Limited reported lower net profit attributable to shareholders of S$12.3m for 4Q15, versus S$46.5m a year ago, in the absence of S$38.4m of EBITDA contribution from 8 Russell Street in Hong Kong. On a full year basis, revenue grew by 45% while net profit attributable to shareholders fell by 12% or S$11.6m. Again, the lower profitability was most likely due to 8 Russell Street a non-recurring associated project (no revenue impact). Overall, full year revenue of S$460.9m and earnings of S$85.1m were above consensus estimates of S$431.5m and S$73.7m. Accumulating land bank to set stage for rebound. In 2015, Roxy has focused more on acquiring additional development and hospitality sites rather than launching new properties. Roxy s strategy is reminiscent of some property developers in Singapore prior to the last upcycle. As Roxy progressively develops its land bank over the next two years, we can expect its financial results to bottom in 2016/2017 and rebound in 2017/2018. However, Roxy has maintained full year dividend of cents per share, translating to a yield of 3.9% over share price of S$ Sales momentum remains positive at existing properties. From 21 October 2015 to 15 February 2016 (four months), Roxy has accumulated S$37.5m of attributable pre-sales from existing properties under development and S$15.9m from new launch Wisma Infinitum Block A. As a result of these pre-sales, Jade Residences (launched in April 2013, 171 units + 2 shops) and Whitehaven (launched in May 2013, 120 units + 1 shop) are now 100% and 95% sold respectively, leaving only two projects in Singapore, launched in May and June 2014, less than 60% sold. Reiterates second core in Sydney. Other than the two sites in Singapore, the rest of Roxy s land bank is in Australia, with one resort development in Phuket, Thailand. After falling during the last two months of 2015, property prices in Sydney grew by 0.5% in January according to CoreLogic RP Data. Reports have also surfaced that property clearance rates in Sydney have recovered to 78.6%, since dipping below 50% during the end of 2015, suggesting that prices are likely to have climbed in February as well. The data supports our earlier bullish view of the Sydney market where tight supply and growing population are expected to keep prices high. Some sites may surprise with investment gains. Based on the existing pipeline, we continue to caution that near term performance may be subdued, unless the rezoning of 54 and 85 Bracks Street and redevelopment of 59 Goulburn Street are confirmed. These two projects have the potential of adding about S$40m of profit to Roxy and boost earnings expectations to around S$65m in Key Financial Data (S$ m, FYE Dec) Sales Gross Profit Net Profit EPS (cents) EPS growth (%) (12.0) PER (x) Adjusted NAV/share (cents) DPS (cents) Div Yield (%) Source: Company, NRA Capital forecasts

2 Results Comparison FYE Dec (S$ m) 4Q15 4Q14 yoy % 3Q15 qoq % 2Q15 1Q15 chg chg Revenue Operating costs (66.2) (55.7) 19 (74.0) -11 (85.1) (139.4) EBITDA EBITDA margin (%) Depn & amort. (1.9) (1.1) 74 (0.7) 175 (1.2) (1.1) EBIT Interest expense (3.5) (3.2) 8 (3.5) 0 (3.1) (3.0) Interest inc & fair value gains , (0.0) Associates' contrib Exceptionals Pretax profit Tax (4.0) (4.7) -15 (2.2) (10.9) Tax rate (%) (24.2) (9.2) 164 (14.3) (19.0) Minority interests (0.1) (0.1) 2 (0.1) 68 (0.1) 0.1 Net profit EPS (cts) Source: Company, NRA Capital Lumpy gains boosted 4Q14 and 1Q15 results. Share of results from associates in 4Q14 was exceptionally large due to profit recognition from the sale of properties at 8 Russell Street in Hong Kong. The project was such that the gains were more one-off in nature. 1Q15 revenue was substantially higher than that of the other three quarters due to S$141.4m of contribution from commercial development Centropod@Changi, whose revenue was 100% recognized only upon completion. 1Q16 net profit will be lower than that of 4Q15 due to S$5.0m of fair value gain on investment property and S$2.1m of fair value gain on cross currency interest rate swap that were recognized in 4Q15. Excluding these gains, the quarterly profit profile of Roxy will likely be around S$5.6m, assuming similar pace of project completion, and including about S$0.6m/quarter of contribution from 50% owned 115 Clarence Street once its acquisition is completed. Expect lower property revenue in Based on the remaining progress billings to be recognized as revenue, Millage, Jade Residences and Whitehaven will likely TOP within this year and provide about S$85m to S$90m of revenue. Millage s contribution will be recognized as share of results from associates. LIV on Sophia and LIV on Wilkie will likely TOP in 2017, but contribute S$65m of revenue in Sunnyvale Residences and Trilive are still 57% and 45% sold. However, construction of these projects has already started and may contribute around S$15m to S$20m of revenue in All in, we are looking at S$170m of revenue from property development in Figure 1: Remaining Progress Billings from Majority Owned Projects Project Stake No of units % Sold Rev recognized in 4Q15 (S$m) Balance progress billings (S$m) Est. Rev in 2016 (S$m) Expected TOP Jade Residences 100% % Whitehaven 100% % LIV on Sophia 90% % LIV on Wilkie 90% % Sunnyvale Residences 100% % /2018 Trilive 85% % /2018 Associated projects 86.3 Total Source: Company, NRA Capital page 2

3 Except for 26 Sea Avenue and 178 & 180A Jalan Eunos, the remaining land bank and hotels under development are mainly overseas projects and any gains will likely only be recognized upon completion the earliest being late 2017 or early Some sites may provide surprise gains. While foreseeable net profit is about S$25m in 2016, we may see some surprise gains from 54 and 85 Bracks Street, North Fremantle, in Perth Australia. The 489,284 sq. ft. site was acquired about a year ago under a joint venture with Hostplus an Australian industry superannuation fund. Roxy has a 20.2% stake in this project, which is to be rezoned from industrial to commercial and residential use. Based on Roxy s share of acquisition cost of A$11.9m or S$12.8m, the land was acquired at a cost of A$120.4psf. If rezoning is successful and the land is given a plot ratio of 2.5x (just as an example), Roxy s land cost drops to A$48.2psf per plot ratio, and the land can potentially be subdivided into packages and be resold to developers at a price of A$100psf ppr or higher. Resale apartment properties in the area can fetch selling prices of about A$500 psf. Hence, there is the potential for Roxy to double its investment in this project if rezoning approval is obtained. (Any decision to onsell or redevelop the property is to subject to final approval with joint venture partners.) Figure 2: 54 and 85 Bracks Street, North Fremantle, Perth (Shaded in Blue) Source: Press Release by Roxy dated 23 March 2015, NRA Capital DA for 59 Goulburn Street has been submitted. Roxy has also lodged the stage 1 development application to reconfigure and add new space to the existing 59 Goulburn Street investment property to accommodate a retail hotel and residential units. This property comprise of 40 office units over net lettable area of 19,397.2 sqm. The development application (D/2016/195) documents are currently not available on the Sydney City Council website, except for the estimated cost of A$170.6m. There are several ways Roxy can manage this property resell it after obtaining Stage 1 or Stage 2 DA approval to immediately harvest investment gains, or recognize the revaluation upside, reclassify the investment property to properties under development, and then redevelop the property (as per accounting treatment similar to Space@Kovan). page 3

4 Based on an average value of A$1,600 per sq. ft. and assuming that NLA increases by 10%, we estimate that Roxy may reap about A$28m of gains from this property if it is fully redeveloped or revalued post DA approval. We are assuming selling prices in between Potts Point A$1,800 psf) and Glebe psf), as per our update report on Roxy dated 27 January Just to recap, 59 Goulburn Street is located right next to World Square one of the top yielding shopping malls in Australia. ISPT acquired 50% of World Square earlier this month for more than A$280m. 1 Figure 3: Estimated Gains if 59 Goulburn Street is Redeveloped Existing net lettable area 19,397.2 sqm Assuming 10% upside Revised NLA 229,668.5 sq. ft. A$m Book value psf of NLA A$psf Book value Construction cost psf of NLA A$psf Construction cost Other 13% of GDV A$PSF Other 13% of GDV 47.8 Cost psf of NLA A$psf Total cost ASP psf of NLA 1,600.0 A$psf GDV Pre tax profit A$psf Pre tax profit 39.6 Less 30% A$psf Less 30% PAT A$psf PAT 27.7 Source: NRA Capital Hence, Roxy s financials will receive a substantial boost of around S$40m if it is able to on-sell both the North Fremantle and Goulburn properties in The following table shows Roxy s existing portfolio of projects and properties, excluding the majority owned projects already shown in Figure 1, but includes the Maldives property bought into earlier in February Figure 4: List of Projects and Properties, excluding majority owned development projects shown in Figure 1 PROPERTY DEVELOPMENT Balance Progress Billings (S$m) Est. GDV* (S$m) Property % Stake Status Singapore Millage 48% Pending TOP in NA Eon Shenton 20% TOP in 2017/ NA 26 Sea Avenue 100% Pending launch in 2H 2016 NA & 180A Jalan Eunos 100% Pending launch in 2H 2016 NA 28.7 Malaysia Wisma Infinitum 47% 22% of Block A sold, Block B Pending launch 15.9 NA Australia 64 Peel Street & 9 Cordelia Street, Brisbane 40% Pending launch NA and 85 Bracks Street, North Fremantle 20.2% Pending rezoning NA A & 8 Buckingham Road, Killara, Sydney 100% Pending launch NA Bayswater Road, Potts Point, Sydney 100% Pending launch NA Cowper St and 8 Elger St, Glebe, Sydney 100% Pending completion of purchase NA *Est. GDV as per January 2016 report. GDV and assumptions for Jalan Eunos, Sea Avenue and Peel Street are provided in this update. HOTEL OWNERSHIP Property % Stake Status Rooms Grand Mercure Roxy, Singapore 100% In operation 576 Noku Roxy, Kyoto, Japan 100% Opened Nov Made S$0.6m of revenue in Roxy Resort, Chalong Bay, Phuket Thailand 100% Under development, completion in Marriot Courtyard, Perth, Australia 49% Under development, completion in Kudafunafaru, Noonu Atoll, Maldives 100% S&P entered in Feb 2016, at cost of US$31.0m NA Total valuation as of 31 Dec 2015* S$588.3m *Excluding Marriot Courtyard in Perth of attributable cost S$8.7m and Maldives project of attributable cost US$31.0m 1 page 4

5 INVESTMENT PROPERTIES Property % Stake Valuation NLA (sq. ft.) Valuation/NLA Shop units at Roxy Square 100% S$70.3m , Goulburn Street, Sydney 100% S$109.5m Clarence Street, Sydney 50% S$40.5m Total S$220.3m S$m Carrying value of investment properties (as per results) Est. fair value of hotel properties and own use premises (as per results) Acquisition cost of Marriot Courtyard, Perth 8.7 Est. GDV of land bank (as per tables above) Total Net debt (as per results) RNAV (1) excluding existing properties under development Number of shares Value per share (S$) Source: Company, NRA Capital Figure 5: Financial Estimates for Peel Street/Cordelia Street Type No GFA (m2) Avg GFA (m2) ASP (A$psf) Unit Value A$m Total A$m Residential , Commercial , Total Total GFA 30,869 Land cost Land cost psf (A$) 101 Land premium Construction cost psf (A$) 475 Construction cost Total cost per psf (A$) 576 Other cost ASP (A$psf) 804 Tax % attri. to Roxy 40% Est. Profit 11.0 Source: NRA Capital Figure 6: Financial Estimates for Sea Avenue and Jalan Eunos 26 Sea Avenue Jalan Eunos Approximate GFA (sq. ft.) 27,264 24,132 Efficiency 85.0% 85.0% Saleable area (sq. ft.) 23,174 20,512 Land Cost (S$psf of saleable area) Land Cost (S$m) Construction Cost (S$psf) Construction Cost (S$m) ASP (S$psf) 1,600 1,400 Gross development value Other costs (@ 5%) Tax Net profit Source: NRA Capital Figure 7: Valuation Est. Net Profit (A$ m) Bayswater Road 7.92 No of shares (m) 1, Cowper St / 8 Elger St Dev. gains per share (S cents) A-8 Buckingham Road 4.38 Adjusted NAV per share as of 31 Dec Peel St & 9 Cordelia St Revised NAV per share (S cents) Total (A$ m) Discount 30.0% AUD SGD rate 1.00 Valuation (S cents) round to Sea Avenue (S$m) 4.27 Share price & 180A Jalan Eunos 4.56 Upside 17.0% Total (S$ m) Est. development gains from land bank Source: NRA Capital page 5

6 Valuation and Recommendation Figures 4 to 7 show our computations since our last update in January. Currently, our valuation factors in the entire portion of Roxy s land bank, except for Bracks Street, Goulburn Street and the revaluation upside from Roxy s hotels under development. Development gains from existing projects, e.g. Millage and Jade Residences have been excluded for simplicity of calculation. Depending on the method of calculation, we arrived at RNAV estimates of S$0.820 to S$0.860 per share. Discounting the lower bound of S$0.820 by 30%, we derived a revised valuation of S$0.575, compared to S$0.560 previously. As with our previous report, we do not assign a rating at this juncture. In our view, a rating will be more appropriate when the future plans for 54 and 85 Bracks Street and 59 Goulburn Street are more certain. page 6

7 Profit & Loss (S$ m, FYE Dec) Revenue Operating expenses (146.7) (142.4) (278.2) (264.7) (377.8) EBITDA Depreciation & amortisation (2.1) (2.4) (2.7) (3.8) (4.9) EBIT Net interest income & fair value gains Associates' contribution Exceptional items Pretax profit Tax (6.7) (7.6) (14.5) (13.5) (15.9) Minority interests (0.2) (0.1) Net profit Shares at year-end (m) , , ,193.5 Balance Sheet (S$ m, as at Dec) 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 , , ,408.8 Total Liabilities + S holders' funds , , ,408.8 Cash Flow (S$ m, FYE Dec) Pretax profit Depreciation & non-cash adjustments (16.3) (13.9) (8.5) (43.9) (2.4) Working capital changes (38.7) (119.9) (206.7) Cash tax paid (5.7) (4.2) (6.0) (6.7) (8.6) Cash flow from operations (2.1) (72.1) (114.5) Capex (4.6) (4.6) (7.9) (43.5) (13.7) Net investments (14.6) (5.5) (17.1) (75.5) (20.6) Others Cash flow from investing (18.8) (9.6) (24.4) (117.3) (32.9) Debt raised/(repaid) (109.5) Equity raised/(repaid) Dividends paid 9.5 (19.1) (16.2) (22.8) (22.8) Others (23.7) (4.2) (13.8) (12.7) (7.6) Cash flow from financing (140.0) Change in cash (20.3) Change in net cash/(debt) (35.1) (105.0) (168.9) Ending net cash/(debt) (252.3) (357.4) (526.3) (501.9) (412.7) KEY RATIOS (FYE Dec) Revenue growth (%) (15.3) (13.9) 45.0 EBITDA growth (%) (17.8) (41.5) 56.5 Pretax margins (%) Net profit margins (%) Effective tax rates (%) Net dividend payout (%) ROE (%) Free cash flow yield (%) (3.6) (14.0) (23.7) Source: Company, NRA Capital forecasts page 7

8 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 8