Roxy-Pacific Holdings

OCBC on 14 Sept 2012

The URA recently enacted caps on the number of units, based on an average 70 sqm size, in non-landed residential projects outside the central area. In addition, a cap based on a 100 sqm average, originally for the Telok Kurau estate, was extended to Kovan and Joo Chiat/Jalan Euno. We see limited impact for ROXY’s pipeline of projects as two of the five recent acquisitions lie in the central area, with the remaining three sites subject to an unchanged 70sqm average. Since we had upgraded ROXY to a buy rating on 20 Mar 2012, the share price has appreciated 32.4% to date, significantly outperforming the STI (up 0.9%). We believe, however, that management’s execution remains spot on and further upside likely lies ahead. Maintain BUY with a higher fair value estimate of S$0.54 (25% RNAV disc), versus S$0.50 previously, as we lower the RNAV discount to reflect a higher sell-through in existing projects and careful execution.

New guidelines for residential developments
The URA recently enacted caps on the number of units, based on an average size of 70 sqm GFA, in non-landed private housing projects outside the Central Area. This is similar to a previous restriction last November for areas with 1.4 plot-ratios. In addition, a rule on the maximum number of homes based on a 100 sqm average, originally for the Telok Kurau estate, was extended to Kovan and Joo Chiat/Jalan Eunos.

Little impact on ROXY’s pipeline
From our discussion with management, we understand that these measures were not surprising. Of their recent five acquisitions, two projects – Sophia Mansion and Wilkie Terrace – are located in the central area and are not subject to the new measures. The remaining three sites were already subjected to the previous 70 sqm rule and would not be incrementally affected. Management also indicated they have received provisional permission (PP) for the bigger sites, Jade and Westvale, with more than 40% of the units sized under 50 sqm, and expect Harbourview to be designed along similar lines.

Demand for shoebox units remain strong
We believe that demand for shoebox units remain buoyant, given still ample liquidity, and existing shoebox projects could well benefit from a lower supply of small units ahead. This being so, existing ROXY projects, such as Natura@Hillview and Nottinghill, could benefit though we note sales at both projects are already approaching 90%

Maintain BUY at higher S$0.54 fair value estimate
Since we upgraded ROXY to a buy rating on 20 Mar 2012, the share price has appreciated 32.4% to date, significantly outperforming the STI which came up 0.9% over the same period. We believe, however, that management’s execution remains spot on and further upside likely lies ahead. Maintain BUY with a higher fair value estimate of S$0.54 (25% RNAV disc), versus S$0.50 previously, as we lower the RNAV discount to reflect a higher sell-through in existing projects and careful execution.