SINGAPORE (Apr 4): Soochow SSD Capital Markets (SCCM) has started coverage on Oxley Holdings at “buy” with a target price of 63 cents, which is pegged at a 20% discount to end-2018 RNAV estimates.
In all, SCCM projects for 11.4% EPS CAGR from FY18-20 with the hand-over of development projects. It expects gross margin from Oxley’s Singapore and overseas projects to exceed 15% and 25%, respectively, with blended margins to be around 25%.
In a Wednesday report, SCCM’s research team says it likes the stock as an “emerging giant with impeccable track record”, having grown from a “shoe-box” condo project developer since its initial Catalist listing in 2010, to a globally diversified Mainboard-listed developer with 28 development projects across 12 different countries, including Singapore.
More importantly, SCCM believes Oxley’s recent return to the Singapore market, along with its active acquisitions of en-bloc sites and an office building, comes just in time for a recovery in the office and residential markets.
“Over the past year, Oxley has swiftly spent close to $1.3 billion in land banking, and has emerged as one of the largest residential pipeline holders in Singapore with ~3,800 units translating to gross development value (GDV) of ~$5 billion (attributable c.$3.25 billion); launching over the next 4-6mo. In addition, Oxley invested $0.66 billion in Chevron House, with potential upside post AEI and office rent recovery,” observes the team.
See: Oxley acquires Chevron House for $660 mil from Deka
SCCM sees the potential for an additional 20% net lettable area (NLA) for asset enhancement initiatives (AEI), as well as for the building’s anchor tenant, Chevron, leaving by 2020 – which would signal room for positive reversions.
Given the group’s healthy balance sheet and stable earnings, Oxley’s hospitality assets could reach $1.4 billion in value once their unbilled contracts over the next 2-3 years are completed, says the research team. In its view, this in turn points to potential for a hospitality REIT listing in 2020.
“With ~$1.78 billion of unbilled contracts vs debt of $1.6 billion over next 2-3 years, we think Oxley’s cash flow is secured and leverage will remain below 2 times. In addition, we estimate Investment prop to gradually rise, making up ~10% of FY20E revenue, lending stability to earnings,” says SCCM.
As at 4pm, shares in Oxley are trading 4 cents lower at 46 cents, or 1.58 times FY18 book.
