• Results came in below expectations.
• Dividend payout of 1.00 S cents/share in 2019 (-33% y-o-y)
• Maintain BUY with target price of S$0.64.

OXLEY's 4Q19 RESULTS

Results came in below expectations.

• OXLEY HOLDINGS LIMITED (SGX:5UX) reported a 4QFY19 PATMI of S$35.8m (-80% y-o-y), bringing FY19 PATMI to S$182.8m (-80% y-o-y). 
• 4QFY19 and FY19 revenue declined by 57% and 42% y-o-y respectively, due to lower contribution from UK projects. FY19 gross margins was 4ppt higher (vs FY18), mainly due to higher margins from hotels (ie which had full-year of operations) and new Singapore development projects, while ytd margins from the UK project was comparable to margins in the corresponding period in 2018.
• FY19 share of results for associates and JV was a loss of S$20.5m (vs profits of S$103.0m), due to recognition on share of loss from the completion of The Bridge project in Cambodia in FY18. Other losses for FY19 increased to -S$16.3m (+92%yoy), due to provision for impairment loss on an overseas development property and write-off of a recoverable amount arising from the termination of a project in Myanmar.
• Finance costs crept up to S$100.8m (+56% y-o-y), mainly due to an increase in amount of bank loans to support the group’s acquisition and development of properties, and higher interest rates over the last 12 months.

Dividend Payout of 1.00 S Cents/share in 2019

• Oxley's dividend payout of 1.00 S cents/share in 2019 (-33% y-o-y), which represents a dividend yield of 3.3% and payout ratio of 27.9% (2018: 20.6%). The full-year dividend of 1.0 S cents comprises a final dividend of 0.68 S cents (and interim dividend of 0.32 S cents, which was paid in May 19). See Oxley's dividend history.

Stock Impact

Singapore Residential to sell-out by end-20.

• To-date, Oxley has sold over 2,410 units (c.61%) of its 3,923 units Singapore-inventory (inclusive of commercial units). Three of the projects (incl. The Verandah Residences, Sixteen35 Residences, Sea Pavilion Residences) are 100% sold. Other projects, such as Riverfront Residences (74%), Affinity @ Serangoon (55%), Mayfair Gardens/Modern (50%), and The Addition (88%) have also crossed cumulative sales marker of 30-40% (ie the level where most projects become self-financing).
• Management expects sales to reach 70% of the total by end-19, and sell out the remaining within 12-15 months. Interestingly, management also observed a surge in investor appetite from Hong Kong buyers (with increased uptake in certain projects, like Mayfair Gardens/Modern in Singapore and the Royal Wharf in the UK), amid unrest in HK region.

Uplift from Draft Master Plan 2019.

• Management expects the recently-announced Draft Master Plan 2019 to inject new investment and selling angle to Singapore projects.
  • The Mayfair project is only a five minutes’ walk from the Future Integrated Transport Hub and Nature attractions (eg Rifle Range Nature Park, and Rail Corridor).
  • The Riverfront project is expected to benefit from the relocation of Paya Lebar Airbase (from 2030 onwards) and construction of Thomson-East Coast (TEL) and Cross Island Line (CCL).
  • The Affinity project is also located four minutes away from the upcoming Serangoon North Station on the Cross Island line.

Net gearing declined to 2.05x (-44ppt q-o-q), on disposal of Chevron House and part of Dublin Landings.

• As a recap, Oxley entered into an S&P agreement with US-based AEW, which saw the buyer purchase the property (via entire interest in Oxley Beryl and takeover existing loans) for S$1.025b on 29 Apr 19. As part of first completion (on 7 Jun 19), the group has received a sum of S$210m (ie before netting S$41.4m retention amount for AEI works), in exchange for 82.35% of shares to the buyer. Currently, Oxley holds 17.65% of Chevron House (also known as 30 Raffles Place).
• On Dublin Landings, during FY19, the group signed contracts to sell two commercial buildings for €204m and part of the residential development for €154.6m (which the group will share 79.5% and 84% of the proceeds respectively). Their sales will also be completed on practical completions of the building, which will take place progressively from end-19 to mid-20.
• Oxley still has S$3.9b (Singapore: S$2.2b/Overseas: S$1.7b) in future progress billings, implying more cash inflows which can pare down debt levels in the coming quarters. This puts the group on good stead in the reduction of its borrowings and puts them in a good position to make the future bond payment.

Group’s hotels on Stevens Road performed well; RevPAR improvement (+29.2%yoy) vs FY18.

• Revenue and gross operating profit increased by 113% and 277% y-o-y respectively in FY19, as a result of better operating performance and a full-operating year in FY19. Management noted that overall tourist arrivals to Singapore, mid-tier hotels’ occupancy, ADR and RevPAR in 1H19 were comparable to 1H18’s, based on STB statistics. They expect tourism demand to grow steadily in the Asia-Pacific region, which will benefit the group’s hotels on Stevens Road.

Outlook on Singapore and Overseas property markets.

• Management is optimistic albeit prudent with regard to new home purchases as it was reported that private property prices in Singapore rose 1.5% in 2Q19 (vs 1.7% decline in 1Q19), despite the lingering effect of the cooling measures in 2018. Private home sales registered a 43.5% increase to 1,174 units in July compared to the prior month, showing signs that sales momentum may remain healthy amid macroeconomic headwinds.
• On the overseas markets, they noted that Brexit uncertainties have impacted property prices in London (although Dublin in Ireland stands to gain, as investors express growing interest in the city’s commercial and residential properties).

Recommendation

• Maintain BUY with unchanged target price of S$0.64, pegged at 30% discount to our RNAV.

Source: UOB Kay Hian Research - 28 Aug 2019