ROXY-PACIFIC: Voyage Research ups forecast for FY15 revenue

Artist's impression of Resort Chalong Bay: A full service resort comprising of 50 one-bedroom villas with their own private pools. Additional facilities will include a spa, wellness center, gym, library, art shop, bar and lounge.

Excerpts from analyst's report

Voyage Research analyst:  Liu Jinshu (left)

Previous close: 52 cents
Intrinsic value: 74 cents
Recommendation: Increase exposure


Roxy-Pacific Holdings Limited’s 1Q FY15 revenue rose by 149% year-on-year to S$198.2m, leading PATMI to grow by 210% to S$46.5m. Excluding one-off revenue of S$141.4m fromCentropod@Changi, the other development projects also contributed about S$42.9m of revenue during 1Q FY15. We revised our forecasts to match the faster pace of revenue recognition and now expect the company to earn full year revenue of about S$371.5m, versus S$344.8m previously. 

Surviving Well In Spite of Downturn: Since the last results release, Roxy has pre-sold about S$26m of properties in Singapore, with Jade Residences and Whitehaven reaching 89% and 94% sales respectively. More recent launches Trilive and Sunnyvale Residences are about one third sold and accounted for 43% of pre-sales during the period 10 Feb to 24 Apr 2015. We are not too concerned about sales at these two projects as they are expected to TOP by mid and end 2018, and we expect them to be substantially sold within the next two to three years. 

Untapped Potential Overseas? Over the last two months, Roxy entered into two new joint venture projects, with gross land area of 737,220 sq. ft. In our view, the land area of these projects is unprecedented, and they also bring the total number of overseas development projects to seven, including three hotels. Over in Australia, Roxy has also cemented relationships with established local brands such as Hostplus, ISPT and Pindan. While returns will only be reported on completion, Roxy’s growing regional portfolio and partnerships with strong brands will raise its profile and increase appeal to international investors. From our perspective, the potential impact on Roxy’s valuation in the long term can be significant. 

Property Business Trading at Attractive 1.2x P/E: Nonetheless, we realized that Roxy is currently trading at just 3.4 S cents per share or merely 1.2 times FY16 EPS, if we strip out the value of its hotel, office and investment properties at a 20% discount from its share price of S$0.520. Using the same approach, our valuation in turn values the property development business at a higher multiple of 9.06x FY16 EPS. 

Pipeline of New Hotels to Provide Synergies: Other than the Grand Mercure Singapore Roxy, the company is currently developing Roxy Hotel (Kyoto, Japan) and Roxy Resort, Chalong Bay (Phuket, Thailand). In addition, Roxy has 49% of a 23 level 332 room hotel development project in Wellington Street, Perth, Australia to be the first hotel operated under the Marriot Courtyard brand in Perth. By 2017, Roxy will grow its number of rooms by 73%, from just 576 at the Grand Mercure Singapore Roxy, to an attributable 990 rooms in the region. 

Artist's impression of Roxy Hotel (Kyoto): enovate and reposition the hotel as an upscale boutique property. The design of the property will incorporate the traditional elements that are unique to Kyoto.
Potential Revaluation Surplus of S$44.1m: Based on an average value per room of about S$0.47m to S$0.48m, we estimate that these three new hotels will generate S$44.1m (with a present value of S$36.9m) of revaluation surplus on completion. These estimates are based on an assumed capitalization rate of 3.5%, which is similar to our estimated rate of 3.3% for the Grand Mercure Roxy Hotel. As the Perth hotel will be managed by an established international operator, we assume net operating margin of about 35%, which is similar to that of the Grand Mercure Roxy Singapore. For the Kyoto and Phuket hotels, we assume less economies of scale and hence net operating margin of only 20%.  

For the full report, click here.