SINGAPORE (June 4): Maybank Kim Eng has initiated coverage on property developer Oxley Holdings at “buy” with a target price of 56 cents, which is based on a 20% discount to its RNAV of 71 cents.
In a report last Friday, analyst Derrick Heng says he expects the group’s sector-leading returns to continue on the back of new local launches and strong overseas presales recognition, which would crystalise about 10 cents per share of development surplus as well as pare down debt to reduce gearing, respectively.
The analyst is forecasting ROEs of 16% for FY18-20E versus the 6% average for its peers, to be led by overseas completions and the potential to compete for bigger and more sophisticated projects given the Oxley’s strengthened balance sheet, larger free float and enhanced stock liquidity following recent share placements.
In Heng’s view, the group’s valuations are not demanding against its robust outlook at its share price of 44 cents, which trades at a 38% RNAV discount and 8 times P/E.
“With timely land acquisitions in the early part of this cycle, we estimate [Oxley] has over 4,000 units worth $5 billion in gross development value (GDV) to capture a residential rebound. And with a land-cost advantage at several projects, we expect competitive pricing for swift sales,” he remarks.
In particular, the analyst sees Oxley’s overseas exposure, through its switching between asset classes and geographical markets over the recent property cycle, as a hallmark of its versatility. This has been key to its sector-leading returns after the 2013 slowdown seen in the local housing market, he adds.
Further, Heng thinks the group is poised to capitalise on an office upcycle with its newly-acquired Chevron House to generate 3.5 cents per share of value considering the impending exit of the property’s anchor tenant, which he views as an opportunity to fill the vacancy up with higher-yielding occupants.
Along with Oxley’s plans to boost Chevron House’s net lettable area (NLA) by 20% via asset enhancement initiatives (AEI), he sees a potential for Oxley to raise its NPI by 35% by 2021E.
“With cashflow visibility from strong unbilled sales and growing recurring income, we are confident about its debt-servicing ability in the year ahead. Even after pricing in a 50bps rate hike, EBITDA should be able to cover cash interest expense by a decent 1.7 times,” says Heng on the outlook of the group.
“Nonetheless, elevating gearing could limit its ability to take on more projects, as it has debt headroom of just $0.5 billion to its debt-covenant limit,” he cautions.
As at 2:37pm, shares in Oxley are trading 1 cent lower at 45 cents or 1.43 times FY18F book.
