• Oxley BizHub TOP resulted in S$251m net income in 1QFY14, up 37 times YoY
• Commercial projects attaining TOP can cause earning spikes
• Highlighting two companies with similar earning boosts ahead

Oxley’s 1QFY14 earnings spike up 37 times YoY to S$251m

For its 1QFY14 (ending Sep-13), Oxley Holdings announced a net income of S$250.8m, up a whopping 37 times YoY. This comprised mainly cash earnings, not valuation gains, and almost matched the combined earnings of CapitaLand and City Developments, the two largest domestic developers, over that quarter. Oxley BizHub’s profits wholly recognized upon achieving TOP

What caused Oxley’s earnings spike?

Under INT FRS 115, its 728-unit industrial project, Oxley BizHub, had its profits booked wholly upon attaining TOP over the quarter. This is known as the Completion of Contract (COC) recognition method and is required for commercial and overseas projects, unlike the progressive profit recognition (POC method) usually seen for domestic residential projects. We note that the full visibility of COC profits can be price catalysts for midsmall cap companies, particularly if they are not well-covered; Oxley’s share price subsequently appreciated as much as 40% after its results.

Highlighting two companies to see COC boosts ahead

We highlight two companies likely to see COC earnings  boosts  ahead.  First,  Roxy-Pacific  is expected  to  see  an  earnings  boost  ahead from Wiz@Changi attaining TOP in its upcoming 4Q13 earnings. In addition, Lian Beng is also anticipated to have their next results (3QFY14) bumped up by its 55% stake in M-Space achieving TOP.

Wiz@Changi and M-Space attaining TOP

We estimate COC profits from Wiz@Changi to likely boost Roxy’s 4Q13 earnings by ~S$19.5m. Excluding revaluation gains, this translates to 155% of 4Q12 earnings (YoY) and 90% of 3Q13 earnings (QoQ). Similarly, Lian Beng has a 55% stake in M-Space and we expect the group to recognize an estimated S$18.3m in profits from this in its upcoming 3QFY14 results. Both Roxy and Lian Beng are rated BUY with fair value estimates of S$0.65 and S$0.58, respectively.

Source: OCBC Research - 4 Feb 2014