Roxy-Pacific Holdings acquires site in Western Australia

Roxy-Pacific reported that it has acquired, along with its JV partner Hostplus, a 4.4 hectare site in Western Australia for A$59m. Roxy will take a 40% stake in the site, which is located next to the prime Leighton beach and the train station connected directly to Perth’s central business district. The consortium intends to rezone the site (currently industrial) into residential and commercial use, and we note this is their second venture in Australia after having acquired, on similar terms, two adjoining sites in South Brisbane earlier this year. Assuming that the rezoning exercise is successful, we see the price for the site to be fairly decent but opt to assign no RNAV surplus to the group’s valuation until more color on development plans is given. Maintain HOLD with an unchanged fair value estimate of S$0.55 per share.

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Roxy-Pacific Holdings: No surprises in 1Q figures

Roxy-Pacific’s 1Q14 net profit came in at S$15.0m, up 27% YoY due to stronger contributions from its core property development segment. 1Q14 net profit forms 17.5% of our full year forecast and is judged to be within expectations, as we expect FY14 to be a mostly back-loaded year with No. 8 Russell Street’s contributions rolling in over the fourth quarter.

1Q14 revenues increased 48% YoY to S$79.5m again due to higher progressive recognition from property developments, primarily Space@Kovan and the MKZ. Performance at the group’s key hotel asset, Grand Mercure Roxy Hotel, remained firm; average occupancy rate increased to 90.2% in 1Q14 from 79.2% in 1Q13, while average room rates dipped 3% YoY to S$190.5.

While the group’s core development business will likely face continued headwinds from an uncertain domestic residential outlook, we like management’s strategy of growing recurring income and diversifying its portfolio geographically. Maintain HOLD with an unchanged fair value estimate of S$0.61 per share.

Roxy good sales at key launches in 2Q13

A key quarter for ROXY
We met with ROXY’s management yesterday. Over 2Q13, ROXY launched three out of four land-bank sites – LIV on Sophia, WhiteHaven and Jade Residences – which are 100%, 71% and 50% sold to date, respectively. Overall, we judge these pace of sales to be fairly strong with selling prices above expectations. In addition, the sold-out launch at LIV on Sophia, located in the same vicinity as ROXY’s final land-bank site (Wilkie Terrace), likely points to positive demand when it is launched ahead.

Successful harvest is a milestone
We see these successful launches to be a key milestone for ROXY given their significant combined size – S$423m and S$95m in estimated total sales and net profits – relative to the group’s project portfolio. ROXY now sits on a whopping S$1,118m of unrecognized progress billings from sold units (up 30% from end FY12), which is 8.1 times total FY12 development revenues and would underpin earnings growth over FY13-16.

Record of sharp execution

Roxy Pacifi 4Q12 result inline

Fair value S$0.61


FY12 earnings in line
The group announced 4Q12 PATMI of S$23.3m, up 96% YoY mostly due to S$11.2m of fair-value gains on investment properties. Excluding one-time gains, we estimate core 4Q12 PATMI at S$13.9m which cumulates to full year earnings of S$48.9m - in line with our FY12 estimates. Topline for the quarter came in at S$56.2m, also up 33% YoY as the pace of revenue recognition from property developments increased. A final cash dividend of 0.92 S-cents is proposed.

Major launches to come ahead
The group continues to execute well on launched projects which are now mostly sold out. Progress billings from already sold units now stand at S$861.7m which would underpin earnings from FY13-16. We expect management to launch remaining projects in its land-bank, including major projects Jade Towers, Westvale Condominium and Sophia Mansions, by 3Q13.

Hotel enhancement to complete by May 13
The hotel segment (Grand Mercure Roxy) continues to put up firm numbers, with bouyant Average Room Rates increasing 6% YoY to S$199.9 in FY12 and driving REVPAR up 1% to S$179.7. Average Occupany Rates (AOR), however, fell

Roxy Pacific Holdings - Jade Towers to be key catalyst

Fair value S$0.45

Visibility from progress billings
Despite increasing market uncertainty from European macro concerns, we believe that ROXY’s earnings continue to be underpinned by significant progress billings of about S$780m. This is from units already sold at launched projects, for which revenue would be recognized as project construction proceeds into FY12-14. In our view, this visibility of earnings ahead could buttress the share price even as the market decreases its risk appetite, and highlight that current progress billings stand at more than five times of FY11 development revenue (S$132.6m).

Execution at Jade Towers to be a key catalyst
We also note that ROXY’s recently launched projects, such as Eon Shenton, The Millage and Natura@Hillview, are converting well into sales, and also expect the MKZ to launch later this year. As we progress into FY12, we estimate that unsold residential exposure could