'Major bargain' Oxley started at 'buy' as RHB brushes aside concerns over high gearing

SINGAPORE (June 13): RHB Research is initiating coverage on property developer Oxley Holdings with a “buy” recommendation and a target price of 41 cents.

The target price is pegged to a 45% discount to its revalued net asset value (RNAV) of 74 cents, and represents an upside of 32% from its current trading price.

“Concerns over its gearing level are overdone, as it should be lowered by key asset sales – especially from Chevron House and its hotels along Stevens Road,” says lead analyst Jarick Seet in a report on Thursday.

Oxley’s 32-storey Chevron House property in Singapore’s CBD has already been sold for $1.025 billion, from which Seet says the group received some $210 million.

See: Oxley sells Chevron House for up to $1.025 bil

Meanwhile, a potential deal for the sale of its Mercure and Novotel hotels along Stevens Road has fallen through, after the buyer defaulted on the deposit.

But Seet is optimistic that Oxley will be able to unlock value from this key asset.

“The Stevens Road hotels which had a previous offer of $950 million, is an attractive proposition for potential buyers,” Seet says. “The land terms have also been converted into freehold, which will be even more attractive to buyers.”

See: Oxley's potential $950 mil deal falls through after Gracious Land defaults on $38 mil deposit

Apart from these, the analyst says Oxley also has 237 million Euro ($366 million) coming in 2020 from its Dublin project as well as another US$204 million from its development in Cambodia.

He also points to another $2.4 billion worth of locally-sold residential units set to be booked into Oxley’s coffers.

“Oxley has $2.18 billion of debts expiring by 2020. However, the majority comprise property loans, which can easily be refinanced. Only $450 million of its retail bond needs to be paid by 2020,” Seet says. “The market has, indeed, been too focused on its high net gearing and underestimated Oxley’s ability to pare down loans.”

“Sturdy profits from its overseas and local projects will also start to flow in, and shareholders could be rewarded by special dividends,” he adds.

Seet notes that the counter is now trading at a “deep 60% discount” to its RNAV and close to a 5-year low.

“We believe that this is an attractive level for Oxley, as its share price has been impacted by property cooling measures, as well as the misconception over its ability to repay debts,” Seet says.

“Together with a 8.1% FY20F dividend yield and potential special dividends, as well as plentiful proceeds coming in the next few years, we think that Oxley is significantly undervalued,” he adds. “This… compels us to initiate coverage on the stock with a strong BUY.”

As at 11.39am, shares in Oxley are trading flat at 31 cents, implying an estimated price-to-earnings (PE) ratio of 2.7 times for FY20F.