Roxy-Pacific Holdings

OCBC on 20 Mar 2012



In Feb 12, ROXY had a strong month of sales. Treescape is now 78% sold at a median price of S$1.4K psf. Also, sales at Nottinghill Suites picked up with an additional 16% sold in Feb 12 (now 60% sold). Currently, we judge that ROXY warrants a lower RNAV discount at 30%, versus 40% previously, due to its more favorable risk profile. First, we see limited risk from long-term residential uncertainties on existing landbank as most remaining sites would likely be launched in 1H12. Second, revenues from FY12-15 are underpinned by S$599m of progress billings (4.5x FY11 development revenues) from already sold units. Finally, a significant portion of value (46% of RNAV) is anchored on Grand Mercure Roxy Hotel, which we value at a fairly conservative 460k per room. Upgrade to BUY and raise our fair value estimate to S$0.62 (using a lower RNAV discount of 30%) versus $0.45 previously.

Positive sales in Feb 12
From the recent URA sales figures for Feb 12, we saw that ROXY had a strong month of sales.
Their newly launched project at Telok Kurau, Treescape, is now 78% sold at a median price of S$1.4K psf. Also, sales at Nottinghill Suites, which was previously subdued, picked up with an additional 16% sold in Feb 12, and the project is now 60% sold. We continue to hold a positive view of management’s ability to sell units in the current environment. Moreover, we now believe that ROXY would launch subsequent projects expediently in 1H12, Eon Shenton (70 Shenton Way), Millage (55 Changi Rd) and Natura@Hillview (Hillview Terrace), and would likely achieve positive results.

More favorable risk profile
At the current juncture, we judge that ROXY now warrants a lower RNAV discount at 30%, versus 40% previously, due to its more favorable risk profile. First, we see limited risk from long-term residential uncertainties on existing landbank as most remaining sites would likely be launched in 1H12. Second, Roxy’s development revenues from FY12-15 are underpinned by S$599m of progress billings (4.5x FY11 development revenues) from already sold units. Finally, a significant portion of value (46% of RNAV) is anchored on Grand Mercure Roxy Hotel, which we value at a fairly conservative 460k per room. We continue to have a favorable view on the domestic hospitality segment and expect overall hotel room demand to grow at 6.4% p.a. from 2012 to 2015 - significantly underserved by an expected hotel room supply CAGR of only 3.8% p.a.

Higher fair value estimate of S$0.62
From our discussions with ROXY, we also understand that it is currently seeking to add to its hotel portfolio going forward, which we believe reflect management’s propensity to seek out high-return risk-adjusted opportunities through changing property cycles. We now upgrade ROXY to a BUY and raise our fair value estimate to S$0.62 using a lowered RNAV discount of 30%. Our previous fair value was S$0.45 (40% RNAV discount).