OXLEY HOLDINGS: 7 takeaways from FY2017 results briefing

Investors at Oxley's FY2017 results briefing had a burning question, and they received what may be said to be an anti-climax answer.

The question: Why has Oxley suddenly accumulated a large stake in United Engineers?

Oxley emerged as a substantial shareholder (more than 5% stake) on 2 Aug 2017, then quickly raised its stake to 10% by the time of the briefing last Tuesday. By the weekend, it was 12%.

The cost of the investment is about $200 million, funded by its operating cashflow.

The answer from Oxley's executive chairman, Ching Chiat Kwong: "We think we can get some revenue from it. They have good revenue, good assets, good rental, good yields at the right price. We are not eyeing to take control of it."

briefing oxley8.17 Big turnout @ Oxley's FY17 results briefing held at its new office in Oxley Tower, Robinson Road. Photo: Reyna Mei

OK, so it's an investment, perhaps not unlike the stakes that Oxley has taken in its Aussie and UK partners: Pindan Group and Galliard Group, respectively.

Here are six other takeaways from the briefing:

1. Asset-light strategy: It's not been highlighted before but, it is clear now, Oxley generally does not buy land for its overseas projects but instead enters into various "capital efficient" deals with the local authorities and land owners.

Mr Ching said: "We didn’t pay for the land in our development projects in Cambodia, Batam, Penang and Dublin."

Thus, Oxley mitigates its business risks, saves on financing costs, and enjoys strong cashflows when it launches the projects.

2. Recurring income: Oxley has grown, and continues to grow, its investment portfolio and, especially, its hospitality assets. It is now projecting significant recurring income in the years ahead.

The hospitality segment -- chiefly, hotels in Singapore, KL and Cambodia -- will be the main contributors (For details, see FY17 presentation).

Recurring revenue projected to become substantial
(S$’m)	FY2018	FY2019	FY2020	FY2021
Hospitality	60.3	83.8	114.8	153.5
Property investments	12.4	13.4	13.5	13.6
Total	72.7	97.2	128.3	167.1

3. Singapore projects: Oxley raised $500 million in recent months and successfully bid for 5 sites in double-quick time.

This is the largest landbank in Singapore currently. It has 3,000 units planned for launch in the next 12 months with a gross development value of $3.32 billion.

ericlow6.16b Deputy CEO Eric Low. NextInsight file photoOxley deputy CEO Eric Low said: "We have been very busy and working day and night, trying to push for the projects to be launched as early as possible because we think the market is good."

Oxley has been fortunate in the timing of its purchase of its landbank.

An example is the Oxley-led consortium which bought, en-bloc, Serangoon Ville, a former HUDC estate in Serangoon North, in July 2017.

Its purchase price: $835 psf per plot ratio.

Shortly later, a Wing Tai-Keppel Land joint venture successfully bid for a piece of land, also in Serangoon North, at $964.50 psf per plot ratio.

"For en-bloc land, we can adopt conventional construction methods but for government land sales, you have to use PBVC (Prefabricated Volumetric Construction) which easily costs $40-50 psf more," said Mr Low. "All in, our purchase is about $200 psf cheaper than Wing Tai-Keppel."

He expects that selling prices at Oxley's Serangoon Ville will be supported by Wing Tai-Keppel's higher pricing.

4. Royal Wharf in London: The drop-out rate has been minimal, contrary to some investors' fears that a significant number of buyers would not complete their purchases of Royal Wharf in the wake of Brexit.

Oxley has handed over 335 units at Royal Wharf and the dropout rate was a trickle: Less than 1%.

The project has more than 3,000 homes, 90% of which has been sold.

"To date, Royal Wharf is providing us the best cash flow that we can ever have," said Mr Low.

Stock price	57 c
52-week range	38 – 61.5 c
PE (ttm)	7.7
Market cap	S$1.7 b
Shares outstanding	2.9 billion
Dividend yield (ttm)	1.23%
Year-to-date return	33%
Source: Bloomberg

5. Malaysia: The two largest projects are the KLCC, a mixed development opposite the Petronas Twin Towers, and a residential project in Penang.

Their respective gross development values are estimated to be S$971 million and S$703 million.

"Our KL project is in a prime location and we assure you that before the end of this year we will launch it. Everything is ready."

As for the proposed Penang project, Oxley does not own the land but has the right to develop it under a JV structure.

Given the challenging property market, Oxley is looking to improved market conditions before embarking on it.

6. Dublin: Next month, Oxley will put up the first block of its Dublin Landings project for sale.

"We think that a lot of pension funds will be looking at it. At 4.5% yield, we are talking about €1,001 per sq ft. Construction cost was about €300 psf. So, there will be another windfall for us," said Mr Low.

"A lot of cash will be coming back because we have funded the construction ourselves, taking only a small loan."

LQM 993300 chingchiatkwong16 Ching Chiat Kwong, executive chairman of Oxley.One day, hopefully, more people will believe in us. A lot of people when they talk about Oxley, talk about timing, luck. I know luck and timing are important but Oxley has come so far because we know what we are doing. As proof, not only we have done 32 projects in Singapore but we also have gone around to 10 countries, especially Cambodia. We are a different breed of developer."

OXLEY HOLDINGS: 7 takeaways from FY2017 results briefing

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