Excerpts from DBS Group Research report
Analysts: Carmen Tay & Rachel Tan
| Riding on residential tailwinds • One of the largest land banks with a substantial residential portion of c.4,000 units to be launched over 2018/2019
• Strong sell-through rates and execution of its overseas ventures to alleviate concerns that financials are stretched • Trading at 54% discount to RNAV; fair value of S$0.68 |
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The Business
Strong pipeline of residential profits. After a 5- year hiatus, Oxley returns to Singapore with a bang, amassing a substantial residential land bank of nearly 4,000 units worth c.S$3.0bn in attributable gross development value (GDV).
With tailwinds from an improved residential market, strong sell-through rates for its projects when launched over 2Q18-2019 could drive its share price higher.
Outside Singapore, Oxley Towers KLCC and Deanston Wharf could contribute an additional c.S$1.3bn when launched and sold.
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Potential unlocking of Singapore hotel assets, which could fetch bids of S$1.2m a key. The keen competition for hotel assets could offer an opportunity for Oxley’s recently completed Novotel and Mercure hotels, estimated at c.S$910m (S$1.2m/key), which we believe is not reflected in the share price. |
Addressing its high leverage of 2.1x should instil investor confidence. Oxley’s high debt-to-equity ratio of 2.1x stands out among peers, which means that the group needs to remain nimble and maintain a quick-asset-turn strategy.
The group’s high debt levels will not put it in good stead in the event of an external shock or a slowdown in property sales momentum as it could undermine profits.
Potential higher interest costs upon refinancing of its bonds in 2019/2020 could mean that a quick-asset-turn strategy has to be employed in this current property market upcycle. Potential asset sales in Singapore and the UK will further strengthen its balance sheet.
The Stock
Trading at c.50% discount to RNAV. Our RNAV of S$1.05 is derived after revaluing Oxley’s existing investments and development projects. After imputing a 35% discount to RNAV (vs 10% discount for large-cap developers), we arrive at a fair value of S$0.68.
Key risks include 1) execution of project launches, 2) policy risk, and 3) rising gearing levels and interest costs in a rising rate environment.
