• Positive on site acquisition
• Limited liquidity poses challenge
• Lower FV estimate to S$0.52

Marine Parade acquisition makes sense

Roxy recently announced that it will acquire a freehold residential site at 26 Sea Avenue for S$21.5m. The site has a total land area of 19.4k sq ft (plot ratio of 1.4) and is within walking distance to Katong 112 and a short drive to the ECP expressway.

We note that the company knows this vicinity well, given that it has long held investment assets here (Grand Mercure Roxy Hotel and 47 units in Roxy Square) and has previously developed several projects close by as well. The land purchase price works out to be S$789 psf per plot ratio and we estimate a breakeven price between S$1.2k – S$1.4k psf.

Despite residential prices being mired in a downtrend, these breakeven levels are well below average transaction prices at comparable residential projects, such as Marine Blue, Coralis and Parc Seabreeze, which are trading at between S$1.5k and S$1.8k psf. In our view, this development, if brought to launch expediently, would likely be profitable and we like the risk-reward here. In addition, the size of this project is relatively small for Roxy (adjusted net asset value of S$916.7m as at end Jun 15), which points to a sensible level of incremental risk exposure.

Lower FV estimate to S$0.52; limited liquidity pose challenge to investors

According to flash estimates, the URA private residential property index declined 1.3% in 3Q15 (versus a 0.9% decline in 2Q15). This will be the eighth consecutive quarter of falling prices since 4Q13, with the index down approximately 8.0% from the peak. As economic uncertainties and a physical over-supply situation in the domestic housing market persist, we continue to forecast for housing prices to dip 5% to 15% over FY15- 16.

We note that ROXY’s share price has been fairly resilient over the last twelve months, but believe limited liquidity could pose a challenge for investors. We update our valuation model for softer residential prices and our fair value estimate dips to S$0.52 (versus S$0.55 previously). Maintain HOLD.

Source: OCBC Research - 7 Oct 2015