Roxy-Pacific Holdings

OCBC on 4 June 2012

Despite increasing market uncertainty from European macro concerns, we believe that ROXY’s earnings continue to be underpinned by significant progress billings of about S$780m and highlight this is more than five times of FY11 development revenue (S$132.6m). We also note that ROXY’s recently launched projects, such as Eon Shenton, The Millage and Natura@Hillview, are converting well into sales, and also expect the MKZ to launch later this year. We continue to like ROXY for its ability to seek accretive land acquisitions, quick turnaround time for projects and efficient sales conversion at recent launches. Execution at Jade Towers would likely be an important catalyst for ROXY’s share price ahead. We maintain our BUY rating at an unchanged fair value estimate of S$0.45 with a RNAV discount of 25%.

Visibility from progress billings
Despite increasing market uncertainty from European macro concerns, we believe that ROXY’s earnings continue to be underpinned by significant progress billings of about S$780m.
This is from units already sold at launched projects, for which revenue would be recognized as project construction proceeds into FY12-14. In our view, this visibility of earnings ahead could buttress the share price even as the market decreases its risk appetite, and highlight that current progress billings stand at more than five times of FY11 development revenue (S$132.6m).

Execution at Jade Towers to be a key catalyst
We also note that ROXY’s recently launched projects, such as Eon Shenton, The Millage and Natura@Hillview, are converting well into sales, and also expect the MKZ to launch later this year. As we progress into FY12, we estimate that unsold residential exposure could decline into only about a quarter of the total gross development value of ROXY’s current residential portfolio. This would comprise of primarily Jade Towers, which is expected to launch in 2012. Being a key project, we believe that execution at Jade Towers would likely be an important catalyst for ROXY’s share price ahead.

Recurring earnings from Hotel segment
ROXY’s hotel segment, comprising of its ownership of Grand Mercure Roxy Hotel (GMRH), continues to put up strong numbers and would provide a steady source of recurring cash flow for the group even as we enter into an increasingly uncertain environment. For the domestic hospitality sector, however, we continue to hold a positive outlook and expect ROXY’s hotel segment to contribute approximately S$17m in profit before tax in FY12.

Maintain BUY at S$0.45 fair value estimate
We continue to like ROXY for its ability to seek accretive land acquisitions, quick turnaround time for projects and efficient sales conversion at recent launches. We maintain our BUY rating at an unchanged fair value estimate of S$0.45 with a RNAV discount of 25%.