WITH MANY PROPERTY stocks having had a sizzling run, it would be interesting to seek out those which have not – and dig out their salient features.
One of them is Roxy-Pacific Holdings, a boutique property developer and a hotel owner which recently received ‘buy’ ratings from SIAS Research and Westcomb Securities. Their target prices are 37 cents and 39 cents, respectively.
Recently, the stock traded at 28 cents for a market capitalisation of nearly $200 million. That's still below the 30-cents a share that Roxy-Pacific (www.roxypacific.com.sg) was listed at in early 2008 on the Singapore Exchange.
To learn more about the business, NextInsight met up with the group's executive director, Koh Seng Geok, and executive chairman-cum-CEO, Teo Hong Lim. Some highlights of Roxy-Pacific:
Photo by Leong Chan Teik
#1 Pre-sale revenue of $340.7 million yet to be recognised
This figure, as announced in Aug in the 1H results, is the total sales of Roxy-Pacific’s property projects as at end-June which has not been recognized in its profit & loss statement.
Roxy-Pacific’s 1H statement said that the $340.7 million would be recognized from Q3 this year to FY 2011 – or essentially 2.5 years.
Assuming the revenue is equally distributed over that period, then on an annualized basis, the $340.7 million translates into an average of $136.3 million – far exceeding 2008’s full-year figure of $80.3 million.
In short, Roxy-Pacific’s property development revenue is set to jump between FY09 and FY11. Roxy-Pacific recognises revenue according to the percentage of completion of the projects.
As for the gross profit margin of this business segment, in 2008, the figure was 24%.
#2 Revalued Net Asset Value of more than 60 cents a share
The book value of Roxy-Pacific is 19.05 cents a share.
This reflects the historical cost of Roxy-Pacific’s sole hotel (the Grand Mercure Roxy Hotel in the East Coast area), and its sole office premises (Roxy Square Shopping Centre).
The market value of the hotel and office premises was estimated to be $278.4 million based on the valuation carried out by an independent valuer on 31 Dec 2008, on an open market value and existing use basis.
Accordingly, the adjusted net asset value per share as at 30 June 2009 would have been 52.54 cents.
That’s not all. If the profits from the $340.7 million of unrecognized revenue from the sale of development properties were to be taken into account, the RNAV of Roxy-Pacific would exceed 60 cents a share.
That puts the current share price of Roxy-Pacific at a steep discount to its RNAV.
#4 More property projects to come
Roxy-Pacific recently purchased for $6.3 million a 11,000 sq ft plot of freehold land in Joo Chiat Place on which six old apartments now sit. The site will be rebuilt into about 20 apartment units. The launch of the project could be in the first half of next year.
Like all other projects by Roxy-Pacific, the Joo Chiat project would be launched with the aim of selling out as soon as possible. “We price to sell. We don’t have a long-term landbanking policy where we buy land and launch a project a few years later,” said Mr Koh.
Roxy-Pacific continues to scout for land parcels, although potential sellers are more demanding in their asking prices.
#3 Hotel room rates and occupancy rates appear to have bottomed
The near-term prospects of Roxy-Pacific’s hotel - Grand Mercure Roxy Hotel - seem harder to pin down.
The hotel potentially will benefit from the recovery in the global economy, which will boost travel into Singapore. About 65% of the hotel’s revenue comes from corporate clients with the remaining from leisure travelers.
Mr Teo: “We believe room rates have bottomed out.”
However, he also pointed out that the emergence of the Marina Sands Integrated Resort will raise the supply of hotel rooms in Singapore.
On top of that, if the IR hotel rates start off at attractive promotional prices, other hotels could feel the pressure on their rates. Some effect might be felt by Grand Mercure Roxy Hotel which had 82% average occupancy rate in the 1H of this year, way above its peers in the mid-tier category (74%).
Photo by Leong Chan Teik
Unlike many other hotels, Grand Mercure Roxy Hotel's location gives it some buffer against any downward pressure emanating from the hotels of Marina Sands IR.
The Grand Mercure Roxy Hotel's location attracts corporate clients with business dealings in the East Coast area. Such corporate clients accounted for 65% share of the hotel’s revenue in 1H this year.
# 5 Potential of Kovan Centre
Roxy-Pacific completed the purchase on Sept 1 of the entire freehold retail space in Kovan Centre located along Yio Chu Kang Road.
The retail space occupies the first and second storeys of the 4-storey retail-cum-residential building. The retail space comprises 37 strata units with a total area of 3,806 sq m.
The collective purchase price was $22.2 million, which works out to $5,833 psm or $542 psf, which is below replacement cost, according to Mr Teo.
Roxy-Pacific intends to improve Kovan Centre's current rental income and could sell the property at an appropriate time.
The freehold land on which Kovan Centre sits is 40,543 sqf and it has a plot ratio of 3. According to Mr Koh, as a redevelopment site, it can be developed into a residential-cum-commercial building with a total gross floor area (GFA) of 121,630 sqf.
For a developer willing to acquire a freehold land in that location at, say, $450 psfppr, Kovan Centre Land is worth at least $50 million.
