Oxley Holdings Company Updates / NRA Capital Research
Time to be Greedy!!!
“Be fearful when others are greedy and greedy when others are fearful.”
▪ Recent share price correction has created buying opportunity. Since the announcement of recent property curbs on 5 July, Oxley Holdings Limited’s share price has corrected by 12.2% from S$0.410 to S$0.360. We argue that the group’s fundamentals are robust against the risk of slower sales and lower selling prices as a) the group has S$3b of unbilled progress billings and S$3.1b of unlaunched overseas projects to provide cash flows and drive sustainable earnings even if the Singapore market slows, b) the group targets project margins of 12% to 25% for its projects in Singapore. Even if prices were to slip by 5%-7%, these projects will remain profitable.
▪ Unbilled progress billings and cash flows mitigate risk. In a 9 July corporate presentation, the group disclosed that it has S$3b of unbilled progress billings, driven by pre-sales of S$446m from overseas projects and S$1b from local projects in 2018. In addition, the group has S$3.1b worth of overseas projects, e.g. in UK and Cambodia, to be launched in 2018. Assuming that these projects are fully sold over two years at an average net margin of 12.8%, we can infer future profit recognition of S$776.5m upon the completion of these projects. Downside risk is also capped by strong projected cash flows whereby the group expects to reap S$368m/S$753m/S$653m from its overseas projects in 2H 2018/2019/2020. Moreover, the group still has about S$954m of excess assets available for gearing.
▪ Remaining Singapore projects will still be profitable. The group estimates that its remaining projects in Singapore have a total revenue potential of S$2.8b. Assuming that these projects are sold at a lower net margin of 7.8% over time, we can expect the group to further earn PATMI of S$218.6m from future project sales in Singapore.
▪ Indicative fair value of S$0.435 per share or 20.8% upside. All in, we expect the group to make S$995m of net profit (S$776.5m+S$218.6m) from its pipeline. After applying a subjective discount of 50% and adding back the group’s current book value, we can derive an indicative fair value of S$0.434 (rounded to S$0.435) per share or 1.40x P/BV. At S$0.360, the group trades at 1.16x P/BV and a low 9M18 annualised P/E of 7.40 times. Hence, we opine that the selling has been overdone and Oxley’s share price now presents a buying opportunity.
▪ Votes of confidence by management. The management has stepped up share purchases this week, buying some 7.52m shares from the market. If sustained, these efforts also provide liquidity against sellers and limit further downside to the group’s share price. In this note, we indicatively rate Oxley Overweight with no return/risk qualification, pending detailed review.
NRA Capital’s Company Valuation
Current price: S$0.360
Fair Value: S$0.435
Up / (downside): 20.8%
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