Roxy-Pacific Holdings

OCBC on 6 Aug 2012

Roxy-Pacific announced 2Q12 PATMI of S$17.7m - up 8% YoY. This is in line with expectations and 1H12 PATMI now forms 49% of our FY12 forecast. Management also declared an interim dividend of 0.67 S-cents, which we expect to be recurring due to the strong cash-flow ahead from S$817.2m of progress billings currently. We note sharp execution on land-banking with four en-bloc sites acquired over the last quarter, leading to S$238m of capital being re-deployed into residential land. Previously launched projects are showing strong sales conversion rates, with the exception of Wis@Changi for which management has stopped active marketing with a view to potentially retain the office units for investment income. Maintain BUY rating with an increased fair value estimate of S$0.50 (30% RNAV disc.), versus S$0.45 previously, due to accretion from land acquisitions.

2Q12 numbers coming in line
Roxy-Pacific announced 2Q12 PATMI of S$17.7m - up 8% YoY. This is in line with expectations and 1H12 PATMI now forms 49% of our FY12 forecast. 2Q12 topline came in at S$52.7m, which increased 13% YoY mostly due to recognition from Spottiswoode 18 and Space@Kovan, and a 3% YoY uptick in hotel revenue as RevPar climbed to S$181.2 in 2Q12 (2Q11: S$175.4). Management also declared an interim dividend of 0.67 S-cents, which we expect to be recurring due to the strong cash-flow ahead from S$817.2m of progress billings currently.

Still finding accretive land-banking opportunities
Management continues to execute sharply on land-banking with four en-bloc sites acquired over the last quarter, leading to S$238m of capital being re-deployed into residential land. We note ROXY prefers to focus on sites with favorable demand-supply dynamics in their micro-regions, such as Pasir Panjang and Sophia Rd, and would continue its strategy of launching land-bank expediently to minimize exposure to market uncertainties. As these sites clear their processes with the Strata Title Board, we expect them to be launched by 1H13 and forecast profit margins of 15%-20%. Previously launched projects are showing strong sales conversion rates, with the exception of Wis@Changi for which management has stopped active marketing with a view to potentially retain the office units for investment income.

Steady earnings from Hotel segment
ROXY’s hotel segment, comprising of its ownership of Grand Mercure Roxy Hotel (GMRH), saw its revenue increase 3% to S$12.4m in 2Q12. The average room rate in 2Q12 was up 7% to S$199.8, while the average occupancy rate dipped to 90.7% (2Q11: 94.3%) as the group carries out room enhancement works expected to end by 4Q12.

Maintain BUY with increased S$0.50 fair value estimate
We continue to like ROXY for its ability to seek accretive land acquisitions, quick turnaround time and efficient sales conversion at projects launched. Maintain BUY with an increased fair value estimate of S$0.50 (30% RNAV disc.), versus S$0.45 previously, due to accretion from land acquisitions.