Roxy-Pacific’s 2Q14 net profit came in at S$22.7m, up 17% YoY due to stronger contributions from its core property development segment. 1H14 net profit forms 43.9% of our full year forecast and is judged to be within expectations, as we expect FY14 earnings to be mostly back-loaded year with No. 8 Russell Street’s contributions rolling in over the fourth quarter. Performance at the group’s key hotel asset, Grand Mercure Roxy Hotel, held fairly firm; average occupancy rate was 89.0% in 2Q14 versus 83.8% in 2Q13, while average room rates dipped 6.5% YoY to S$183.4.

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. The group also announced yesterday that it has agreed to acquire a land site (940 sqm) and an existing hotel building (GFA 4,780 sqm) in Nakagyo-ku, Kyoto-City, Japan for ¥2,264m (S$27.5m). In addition, an interim dividend of 0.616 S-cent per share has been proposed. Maintain HOLD with an unchanged fair value estimate of S$0.61 per share.

Source: OCBC Research - 1 Aug 2014