SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

<p><i><b>These equity research reports are not written by the SGX.</b> SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</i></p><div>
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<p>INITIATE COVERAGE</p>
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<h2>Oxley Holdings (OHL SP)</h2>
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<p><strong>Impeccable Track Record</strong></p>
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<p><strong>Oxley trades at an attractive 52% discount to our S$0.72 RNAV (0.9x P/B), from undue “overhang” of cooling measures and gearing concerns. Much less appreciated is the group’s stellar Singapore residential sales (about 63% sold) and S$3.9b unbilled sales (vs S$3.1b net debt). The group also had a demonstrable 22% ROE (peer average: 7%) in 2014-18, enabled by its fast turnaround, astute land- banking and leverage. Resume coverage with BUY and target price of S$0.50, pegged at a 30% discount to RNAV.</strong></p>
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<li><strong>Strong earnings visibility from diversified base; spreads out local regulatory risks</strong>. Oxley Holdings (Oxley) has a diversified earnings base with S$3.9b of S$7.5b in secured development sales yet to be collected, spread across Singapore (56%), the UK (15%), Ireland (15%), Cambodia (11%), Malaysia (2%) and Indonesia (1%); this can help the group balance the risk of changes in local government measures.</li>
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<p><strong>Singapore residential sales (c.63% sold) to remain stellar, thereby transferring holding risk to buyers.</strong> As of end-Sep 19, Oxley had sold about 63% of its 2,226 attributable units (total: 3,814 units/est. GDV: S$4.86b). Management expects Singapore residential sales to reach 70% by end-19 (and sell out completely in 12-15 months). Upcoming nearby rival launches (eg Sengkang Grand Residences, Royal Green) are also expected to draw new buying interest to Oxley’s more attractively-priced projects.</p>
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<p><strong>Gearing concerns overblown; to subside on project completions and potential hotel sale.</strong> Net gearing has declined steadily (from high of 6.22x in FY10) to 2.05x in FY19. Much less appreciated is Oxley’s high cash flow visibility from S$3.9b unbilled sales (vs S$3.1b net debt). Of this, unbilled sales from overseas projects (S$1.7b), like Royal Wharf, Dublin Landings, The Peak, are proven in terms of revenue recognition and cash collection. The remaining S$2.2b Singapore progress billings are unlikely to see drop-offs (ie given the progressive payment scheme where 20% of purchase price is committed at the point of booking a unit). Management may revisit the sale of Novotel &amp; Mercure Singapore on Stevens (totalling 772 rooms, 11 commercial units) with an indicative valuation of S$1.053b in 2020 if there are good offers, as the supply situation is expected to tighten on the back of more regional events in even years (eg 2020 and 2022). Amid signs of growing investor interest, cap rates for Singapore hotels also compressed to 3.25% (vs 4.5% a year ago), based on valuers’ input in their FY19 annual reports. Land tenure of Novotel &amp; Mercure Singapore on Stevens has also been converted to freehold, which will further increase its appeal to buyers.</p>
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These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.







INITIATE COVERAGE




Oxley Holdings (OHL SP)




Impeccable Track Record




Oxley trades at an attractive 52% discount to our S$0.72 RNAV (0.9x P/B), from undue “overhang” of cooling measures and gearing concerns. Much less appreciated is the group’s stellar Singapore residential sales (about 63% sold) and S$3.9b unbilled sales (vs S$3.1b net debt). The group also had a demonstrable 22% ROE (peer average: 7%) in 2014-18, enabled by its fast turnaround, astute land- banking and leverage. Resume coverage with BUY and target price of S$0.50, pegged at a 30% discount to RNAV.





Strong earnings visibility from diversified base; spreads out local regulatory risks. Oxley Holdings (Oxley) has a diversified earnings base with S$3.9b of S$7.5b in secured development sales yet to be collected, spread across Singapore (56%), the UK (15%), Ireland (15%), Cambodia (11%), Malaysia (2%) and Indonesia (1%); this can help the group balance the risk of changes in local government measures.







Singapore residential sales (c.63% sold) to remain stellar, thereby transferring holding risk to buyers. As of end-Sep 19, Oxley had sold about 63% of its 2,226 attributable units (total: 3,814 units/est. GDV: S$4.86b). Management expects Singapore residential sales to reach 70% by end-19 (and sell out completely in 12-15 months). Upcoming nearby rival launches (eg Sengkang Grand Residences, Royal Green) are also expected to draw new buying interest to Oxley’s more attractively-priced projects.


Gearing concerns overblown; to subside on project completions and potential hotel sale. Net gearing has declined steadily (from high of 6.22x in FY10) to 2.05x in FY19. Much less appreciated is Oxley’s high cash flow visibility from S$3.9b unbilled sales (vs S$3.1b net debt). Of this, unbilled sales from overseas projects (S$1.7b), like Royal Wharf, Dublin Landings, The Peak, are proven in terms of revenue recognition and cash collection. The remaining S$2.2b Singapore progress billings are unlikely to see drop-offs (ie given the progressive payment scheme where 20% of purchase price is committed at the point of booking a unit). Management may revisit the sale of Novotel &amp; Mercure Singapore on Stevens (totalling 772 rooms, 11 commercial units) with an indicative valuation of S$1.053b in 2020 if there are good offers, as the supply situation is expected to tighten on the back of more regional events in even years (eg 2020 and 2022). Amid signs of growing investor interest, cap rates for Singapore hotels also compressed to 3.25% (vs 4.5% a year ago), based on valuers’ input in their FY19 annual reports. Land tenure of Novotel &amp; Mercure Singapore on Stevens has also been converted to freehold, which will further increase its appeal to buyers.






























Non-SGX Report: Oxley Holdings (OHL SP): Impeccable Track Record

Partner, River Valley Asset Management

River Valley Asset Management

Partner

Singapore-based boutique asset management firm

River Valley Asset Management is a Singapore-based boutique asset management firm. Our team at RVAM strongly believes in being a trusted steward of our clients' wealth across generations.

Each of our fund managers has years of rich portfolio management experience over multiple market cycles at world-class investment houses. We bring our clients the combined strength of our investment team to manage their financial portfolios and to provide bespoke guidance on all aspects of their financial health.

We offer multi-asset class expert investment advice to accredited investors who are family offices, high net worth individuals and institutional investors to preserve and grow our clients' wealth.

The fund management team of the company includes Homiyar Vasania, Anand Ramachandran and Jamshed Desai.

Thematic (Sector/Industry)

<p><span lang="EN-SG">As a mature economy with stable businesses, Singapore's equity benchmarks are dominated by Banks &amp; Government Linked Companies (GLC's) which have grown large over time. The large listed companies in Singapore (private as well as GLC’s) are now facing headwinds from tight labour markets resulting in rising costs and, in the absence of growth, the need to focus on raising productivity. <br></span><br><span lang="EN-SG"><span lang="EN-SG">It is therefore not surprising that the Singapore markets do not excite the average investor. However, within this space we have been finding many hidden gems which have consistently delivered and increasingly fit the needs of a Singaporean investor looking for stable returns in a low growth environment: the REIT marketplace. Over the last seven years the REIT index has delivered over 10% p.a. annualized return which stands in stark contrast to the meagre 4% returns from benchmark STI index.</span></span></p>

As a mature economy with stable businesses, Singapore's equity benchmarks are dominated by Banks &amp; Government Linked Companies (GLC's) which have grown large over time. The large listed companies in Singapore (private as well as GLC’s) are now facing headwinds from tight labour markets resulting in rising costs and, in the absence of growth, the need to focus on raising productivity.   It is therefore not surprising that the Singapore markets do not excite the average investor. However, within this space we have been finding many hidden gems which have consistently delivered and increasingly fit the needs of a Singaporean investor looking for stable returns in a low growth environment: the REIT marketplace. Over the last seven years the REIT index has delivered over 10% p.a. annualized return which stands in stark contrast to the meagre 4% returns from benchmark STI index.

Singapore

Oxley Holdings Ltd. develops real estate. The Company develops residential and commercial projects in accessible locations. Oxley also develops light industrial buildings that include swimming pools and other recreational amenities.

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Oxley Holdings (OHL SP)

Non-SGX Report: Oxley Holdings (OHL SP): Impeccable Track Record

These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external contributors. Please...

Singapore Exchange Ltd (SGX)

Singapore - The Hidden Gems

As a mature economy with stable businesses, Singapore's equity benchmarks are dominated by Banks & Government Linked Companies (GLC's) which...

River Valley Asset Management

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52-week Range

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