• Expect Wis@Changi boost in 4Q13
• COC recognition under INT FRS 115
• Maintain BUY at S$0.65 FV

Earnings ahead likely to see boost

For its earnings announcement due on 13 Feb-14, we expect Roxy’s quarterly earnings to be boosted by the TOP of Wis@Changi – a commercial project located at 116 Changi Road. This is known as the Completion of Contract (COC) recognition method and, under the accounting standard INT FRS 115, 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 mid-small cap companies, particularly if they are not well-covered.

Wis@Changi completion to contribute

Wis@Changi is a mixed retail and office development project (23 retail units, 60 office units) with an allowable GFA of 51k sq ft. The company acquired the mixed development site, located at 116 Changi Road, for S$35.5m in 4Q10 and it is currently fully sold.

Wis@Changi TOP to boost 4Q13 earnings by ~S$19.5m

Taking into account the land cost for the site at S$35.5m and assuming construction cost at S$350 psf GFA, we estimate average breakeven price at S$1.0k – 1.1 k psf. Overall, we believe this project’s COC profits would likely boost Roxy’s 4Q13 earnings by ~S$19.5m. If we exclude revaluation gains, this amount translates to 128% of 4Q12 earnings (YoY) and 121% of 3Q13 earnings (QoQ).

Maintain BUY at S$0.65

Despite the URA price index showing a dip in 4Q13 (for the first time since the last financial crisis over 3Q08 – 2Q09) and residual uncertainties in the domestic residential sector, we note that Roxy’s key residential projects, LIV on Sophia, Whitehaven and Jade Residences, are all substantially sold and the group is poised to benefit from progress billing of S$1.1b (to be recognized from 4Q13) from already sold units. We currently have a BUY rating on Roxy with a fair value estimate of S$0.65 (adjusted for 1-for-4 bonus issue in Sep-13).

Source: OCBC Research - 11 Feb 2014