Roxy-Pacific Holdings Limited

Transcription

1 Roxy-Pacific Holdings Limited An All-Rounder with Undervalued Assets We re-initiate coverage of Roxy-Pacific Holdings Limited (Roxy) with an Increase Exposure rating and an intrinsic value of S$0.605 (post-bonus issue). Strong recent sales suggest that Roxy s progress billings are now in excess of S$750m, substantially confirming that the company will still be able to deliver core earnings growth from now to 2014 and has time to cherry pick new land deals. Moreover, we like the highly versatile nature of the company, which reassures us that Roxy will be able to adapt to the evolving property market and continue to roll out successful products. Fundamental Drivers / Key Developments: Recent Sales Have Boosted Progress Billings: We estimate that Roxy has sold 91% of its units launched in 2012, adding about S$150m of unrecognized sales to progress billings. Three out of four projects have attained sold out status TREESCAPE, Millage and Natura@Hillview Phase 1. Sales of previously launched projects added another S$30m to progress billings in Growing from Strength to Strength: Since its listing in 2008, we observed that Roxy has been expanding its suite of property development capabilities. Its track record now has substantial variety, in terms of product and design innovation, development type, target market, geographical spread, scale and unit configurations. These capabilities will allow the company to adapt to changing market trends and create sustainable growth. Ready for HDR/HDA Rules: Roxy s operational strength is further demonstrated by the fact that it has already preemptively put in place the operating systems even before the latest URA changes to housing developer rules were finalized. Hotel & Investment Properties Buttress Valuation: Moreover, Roxy owns a hotel and a portfolio of shop units that are valued at S$461.6m (S$0.483 per share) as at end 2011 by an independent valuer. As such, Roxy s current market value does not incorporate much of the development gains in its >S$750m of progress billings, that will be recognized as profit from now to as late as Increase Exposure Intrinsic Value Prev Close S$0.605 S$0.430 Main Activities Roxy-Pacific Holdings Limited is principally engaged in the development and sale of residential and commercial properties and the ownership of Grand Mercure Roxy Hotel and other investment properties. Financial Highlights (Y/E Dec) S$ m FY11 FY12F FY13F Revenue Gross Profit Profit from Assoc EBIT Earnings EPS (S cts) All per share data are based on post-bonus issue number of shares. Key ratios (FY12F) PER 8.2 P/RNAV 0.7 Return on Common Equity 22.2% Net Debt / RNAV 41.5% Current ratio 5.8 RNAV refers to book value of equity + fair value in excess of book value for hotel and office premises. It excludes the development value of projects in pipeline and landbank. Source: SIAS Research Indexed Price Chart Green (FSSTI) White (ROXY) Chart from Bloomberg is unadjusted for bonus issue in Apr 12. Source: Bloomberg 52wks High-Low S$0.710 /S$0.370 Number of Shares 954.8m Market Capitalization S$410.6m Analyst: Liu Jinshu, Deputy Lead Analyst jinshu@siasresearch.com Tel: Page 1 of 22

2 A Specialty Property & Hospitality Group Established in 1967, Roxy-Pacific Holdings Limited (Roxy) is in the business of developing and investing in Singapore properties. Track Record and Key Assets Property Development: Launched 30 wholly-owned and JV projects of >2,100 residential and commercial units since 2004 to now. Hotel Property: Owns 569-room Grand Mercure Roxy Singapore hotel at 50 East Coast Road, which including Roxy s office premise, is valued at S$416.9m. Investment Properties: 51 shop units at Roxy Square Shopping Centre, which is next to the hotel. 46 of these shops are valued at S$44.7m. Five units are used as Roxy s office and their fair value are included in the S$416.9m above. FY11 Revenue Mix: Property Development S$132.6m (72.2%), Hotel Ownership S$48.4m (26.4%), Rental Income S$2.6m (1.4%) Figure 1: Roxy s Annual Profit after Tax Figure 2: Adjusted Net Assets Value S$m FY07 FY08 FY09 FY10 FY11 Profit After Tax Bonus Share Issue: As at 21 Mar 2012, Roxy s directors have immediate and deemed interests in 67.7% of the company s shares (66.9% as at 31 Dec 2010). To broaden its shareholder base and to reflect the growth and expansion of the Group s business and at the same time to reward shareholders, the company will be issuing one bonus share for every two existing shares. Shareholders with Roxy shares in their CDP accounts as at 5.00 pm on 25 Apr 2012 will be entitled to the bonus shares (23 Apr Ex-Entitlement). Resumption of coverage: Our last update report on Roxy was dated 24 Feb Since then, Roxy has, via its subsidiaries and associates, acquired at least 10,102 sqm. of land at a cost of S$161.1m and launched seven properties with estimated attributable sales of S$290.7m as at 4 Apr As a result, progress billings rose by 10.9%, from S$540.0m as at 17 Feb 2011 to S$598.6m as at 15 Feb In view of these developments and the amount of time between our last update in Feb 2011 and now, we decided to resume coverage of Roxy with a complete initiation report. Page 2 of 22

3 Figure 3: Roxy s Past and Present Developments as Marked on a Map of Singapore Grand Mercure Roxy Singapore & Roxy Square Shopping Centre In no particular order: 1) The MKZ (upcoming launch), 2) EON Shenton, 3) Natura@Hillview, 4) Nottinghill Suites, 5) Spottiswoode 18, 6) Space@Kovan, 7) The Florentine, 9) Nova 88, Nova 48 and The Marque@Irrawaddy, 10) Millage, Treescape, Centropod@Changi, WiS@Changi, Jupiter 18, Studios@Tembeling, Straits Residences, Haig 162, The Verte, The Adara, The Ambra, The Lucent, The Medley, The Ambrosia, The Azzuro, The Montage, Axis@Siglap, St. Patrick s Loft, The Nclave, The Treeline, Martia Residence and Veranda. Source: Google Maps, Company, SIAS Research Figure 4: List of Recent Projects, By Development Types, No of Units Project No of Units / Development Type (Residential = R) Launch Est. TOP The Verte 36 R 2008 Completed Nova R 2009 Jun-12 Haig R 2010 Mar-13 Straits Residences 30 R 2010 Jun-13 Studios@Tembeling 25 R 2010 Nov-12 Jupiter R 2010 Jun-13 Space@Kovan 56 Retail R 2010 Mar-15 Spottiswoode R Jan-2011 Jun-14 Nottinghill Suites 124 R Jul-2011 Sep-14 WiS@Changi 23 Retail + 60 Office Sep-2011 Mar-14 Centropod@Changi 117 Retail + 75 Office Dec-2011 Mar-15 TREESCAPE 30 R Feb-2012 Jun-14 Millage 86 Retail + 70 R Mar-2012 Feb-16 Natura@Hillview 193 R Mar-2012 Sep-15 EON Shenton 23 Retail + 98 Office R Apr-2012 Jun-16 The MKZ 42 R Jun/Jul-2012 Mar-15 Page 3 of 22

4 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar April 2012 Overview of the Singapore Property Market New Rules for Housing Developers: The Urban Redevelopment Authority (URA) announced on 18 Apr 2012 changes to the Housing Developers Rules (HDR) that will be effective from 18 May Essentially, the new rules imposed higher disclosure and procedural requirements on developers. For instance, developers will have to provide details such as project site plan, unit floor plan, the unit s floor area breakdown by spaces, as well as information on at least one completed local project to buyers before the option-to-purchase is issued. Among other new procedures, developers will also have to obtain the buyer s consent before making non-insignificant changes to a unit. What s Next? URA is currently finalizing changes to the Housing Developers (Control & Licensing) Act (HAD) for implementation in 2H They will include requirements on the accurate depiction of actual units at show flats and the publication of transacted prices on a weekly basis. Not as Harsh as ABSD: At initial glance, the new HDR and upcoming HDA rules seem to be aimed at leveling the informational asymmetry between developers and buyers. More subtly, they may also slow project turnaround as developers now need to finalize their designs and plans to finer detail before the project launch. Unlike the additional buyer s stamp duty (ABSD), the new rules are not designed to directly curb demand. URA s press release and details of the changes can be viewed at pr12-40.html The URA press release on ABSD in Dec 2011 can be viewed at pr html Market Has Recovered From Immediate Impact of ABSD: Following the introduction of the ABSD, private residential property take-up rates have recovered from an average of 67% in Dec 2011 to 93% in Mar Volume has likewise recovered with 2,393 units sold (excluding executive condominiums) in Mar 2012 versus 632 in Dec Figure 5: Volume & Take-Up Rates Recovered in 2012 No of Units 3,000 2,500 2,000 1,500 1, Take-Up Rate 140% 120% 100% 80% 60% 40% 20% 0% No of Units Launched No of Units Sold 3-month avg. Take Up Rate (%) Actual Take-Up Rate (%) Source: URA, SIAS Research Page 4 of 22

5 Thanks to Strong Suburban Demand: There were 35 new private residential project launches in 1Q 2012, comprising of 7,256 units. The bulk of these projects 17 of them were located outside the Central Region (OCR). 4,918 out of 6,191 units were sold, translating to a take-up rate of 79.4% in the suburban areas over Jan to Mar Projects that were launched in Jan or Feb 2012 were actually 83.9% sold on average. Figure 6: New Projects in 1Q 2012, By Area Region No. of New Launches No. of Units Launched No. of Units Sold Take- Up Rate Outside Central 17 6,191 4, % Rest of Central 15 1, % Core Central % Source: URA, SIAS Research The number of units launched in Figure 6 only pertains to new projects. Subsequent launches of older projects are excluded. But, the ABSD is Taking Effect: However, URA s flash estimate of the private residential property price index for 1Q 2012 suggests that overall prices may have retraced by 0.1% from 4Q 2011 due to a softer RCR/CCR market. Prices in the Outside Central Region (OCR) grew by 1.2% quarter on quarter, while prices in the Core Central (CCR) and Rest of Central Regions (RCR) fell by 0.9% and 0.7% respectively. Figure 7: Private Residential Property Price Index Q Q Q Q Q Q Q 2012 Source: URA, SIAS Research Figure 8: Private Residential Property Price Index, By Regions (Rebased to 3Q 2010 = 100) Q Q Q Q Q Q Q 2012 Core Central Region Outside Central Region Source: URA, SIAS Research 1Q 2012 Estimates: Rest of Central Region: Core Central Region: Rest of Central Region Competitive Offerings Will Still See High Take-up Rates: Against this backdrop, we believe that developers that offer apartments with significant points of differentiation at reasonable prices will continue to see strong sales. Recent examples of these points of differentiation include being near MRT station (e.g. Parc Rosewood), attractive sea/city/nature scenery or view (e.g. Waterfront, Sky Habitat) and integration with retail mall (e.g. The Hillier). Page 5 of 22

6 Developers Measures to Adapt: We think that well-managed developers with established control and information systems will be able to meet most of the new HDR (and upcoming HDA) regulations relatively easily. The requirements concerning the disclosure of specific floor areas and the accurate depiction of units by showflats may slow the trend of falling unit floor areas as developers probe market limits on unit sizes more carefully. We also think that developers may try to lower their risk by designing projects to better compete for genuine buyers such as HDB upgraders, singles, new couples and retirees as policy risk continues to cool investors and speculators. Figure 9: New Projects in 1Q 2012 No of Units Exclude Commercial Space Jan Mar 2012 No of Units No of Launched Units Sold Take-Up Rate JAN 2012 LAUNCHES PARC ROSEWOOD % WATERTOWN % FARRER PARK SUITES % THE HILLIER % THE RAINFOREST % CENTRA RESIDENCE % CARMINE COLLECTION % RIVERSOUND RESIDENCE % IDYLLIC SUITES % THE GEYLANG % MAR 2012 LAUNCHES MILLAGE # % SELETAR PARK RESIDENCE % LEVENUE % EAST VILLAGE % RIPPLE BAY % NATURA@HILLVIEW # % THE CRISTALLO % THE LUSH % SMART SUITES % PALM ISLES % 18 WOODSVILLE % Source: URA, SIAS Research Jan Mar 2012 FEB 2012 LAUNCHES No of Units Launched No of Units Sold Take-Up Rate GUILLEMARD EDGE % TREESCAPE # % CASA CAMBIO % ASPEN LINQ % TWIN WATERFALLS % BARTLEY RESIDENCES % THE VANDERLINT % PRIMEDGE % THE TAMPINES TRILLIANT % NESS % CRADELS % SILVERSCAPE % GREENWOOD MEWS % 26 NEWTON % # Roxy s developments. Natura@Hillview was launched on 31 Mar A 77% 1 st day take-up rate is quite impressive, in our opinion. A subsequent newspaper article mentioned that the Natura@Hillview was 96% (70 units) sold within three days. Phase 1 of the Natura@Hillview consisted of 73 units. Page 6 of 22

7 Roxy Already Has Its Growth in Place Next 4 Years Avg. Revenue 25% Higher than 2011 Level: As at 15 Feb 2012, Roxy had progress billings of S$598.6m that have not been recognized as revenue. We further estimate that the company sold about S$161.0m of properties from 16 Feb to 4 Apr In all, Roxy s total attributable progress billings, including revenue to be recognized in 2012, should be about S$759.6m or 5.7 times 2011 property development revenue. Some 87.5% of our estimated >S$750m of progress billings are from projects that will TOP from now to This works out to average annual revenue of S$166.1m to be recognized via Roxy s subsidiaries and associates over % higher than 2011 property development revenue of S$132.6m. Incorporating projected future sales from existing projects and future launches, we forecast Roxy s property development segment to make average annual PBT of S$63.6m from 2012 to 2015 on simple average yearly growth of 41.1%. Roxy only has one project left that is completely unlaunched. Figure 10: Progress Billings as at 15 Feb 2012 (Projected Sales in Figure 8) as at 15 Feb 2012 as at 31 Dec 2011 Project Group's Stake Attributable total sales value (S$m) Recognized Revenue (S$m) Progress Billings (S$m) The Verte 100% Nova % Haig % Straits Residences 100% Studios@Tembeling 100% Jupiter % Spottiswoode % Space@Kovan 100% Nottinghill Suites 45% Wis@Changi 100% Centropod@Changi 100% Treescape 100% Total (a) (b) (a)-(b) Roxy s accounting policy requires Roxy Has Time to Cherry Pick: In fact, our estimates suggest that Roxy s recognition of earnings from progress billings will peak between 2014 and Therefore, Roxy has approximately up to 2013 to rebuild its land bank and up to 2014 to launch new projects before earnings from existing sales begins to decline. This means that Roxy has one to two years time to pick and time new land acquisitions to generate the best returns. That said, the company is not being complacent and is still on looking for good investments. Roxy recently incorporated a new subsidiary RP Assets Pte Ltd, which may be used to hold an upcoming acquisition. Page 7 of 22 revenue from purely commercial developments i.e. WiS@Changi and Centropod@Changi to be recognized at project completion. Mixed-use and residential projects continue to be under the percentage of completion method. Our forecasts have already factored in this accounting treatment.

8 Figure 11: Estimated Sales 16 Feb 2012 to 4 Apr 2012 Key Assumptions Project Attributable Est. Est. GFA Est. ASP (S$/psf) URA March Roxy sales value Cum. Sold, sq. ft. Residential = R, Shops = S, Median Stake (S$m) % Sold (no of units) Restaurants = Rest., Offices=O Price Nottinghill Suites 45% % 10,007 (21) 1,569 (R) 1,560 WiS@Changi 100% % 4,278 (8) 3,600 (S), 2,800 (Rest.), 1,450 (O) NA Centropod@Changi 100% % 12,759 (24) 2,900 (S & Rest.), 1,650 (O) NA TREESCAPE 100% % 7,507 (10) 1,279 (R) 1,255 Millage 48% % 54,448 (156) 1,350 (R), 3,500 (S) 1,379 (R) Natura@Hillview 49% %^ 41,848 (70) 1,250 (R) 1,334 (R) EON Shenton 20% %^ 81,047 (108) 2,500 (R), 4,500 (S), 2,500 (O) NA Total ^% sold is based on both launched and unlaunched units. If we only refer to launched units, take-up rates for Natura@Hillview and EON Shenton are about 96% and 78% respectively as at 4 Apr No of units sold include both shops and offices and are approximate estimates gathered from various sources. They need not necessarily match URA data due to timing differences and the fact that Roxy s count as at 15 Feb 2012 is based on optionto-purchase. Est. GFA sold is based on total sellable area from floor plans / number of units x estimated units sold. ASPs are gathered from various sources, e.g. URA data, media articles and indicative ranges provided by the company. URA median prices for the month of March pertain only to residential properties. Source: Various Sources, Company, SIAS Research Roxy s Versatility Outweighs Challenges Why Roxy? Versatility: Our review of Roxy s capabilities and product portfolio left us with the impression that the company is highly versatile and has already adapted its strategy/operations to outperform in the current environment. More importantly, this quality will help the company to sustain its long term performance. When we met the management a couple of weeks ago, they shared with us that Roxy has already updated their information management systems and increased their project management headcount to pre-emptively meet the then proposed new rules and regulations. These moves proved impressive when the new rules were announced subsequently. Roxy s shift towards mixed-use and commercial properties provides further evidence of the company s adaptive ability. Prior to the acquisition of Kovan Centre in 2009, Roxy s development portfolio consisted of solely residential projects. Since then, Roxy has been acquiring more sites for mixed and commercial properties. Of the eight properties launched in 2011 and 2012 thus far, half of them are mixed-use or commercial properties. The impetus for diversification into non-residential space came about when the management realized that the market has a shortage of strata-titled commercial properties, as commercial properties were increasingly being acquired or injected into REITs. Page 8 of 22

9 Roxy s strategic expansion into non-residential space has again proved to be far-sighted as more investment capital may now flow towards non-residential properties given the spectre of policy risks in the residential segment. In particular, Roxy s retail units have been popular. Of the 305 shop units launched from Space@Kovan in 2010 to EON Shenton in 2012, only four units are left. Selling prices, at S$2,900 to S$4,900 psf., are also typically higher than that of residential units. Wide Range of Capabilities Support Adaptive Ability: Roxy s developments used to be concentrated in the eastern part of Singapore. Since its IPO in 2008, Roxy has developed projects in the CCR, RCR and OCR areas, which cater to different target buyers, from the mass-market to upper middle income buyers. Not only has Roxy expanded the geographical spread of its projects, it has been stretching its capabilities to execute both small and larger projects. Prior to 2009, most of Roxy s projects had less than 50 units. In 2009 and 2010, it scaled up to include Nova 88 and Haig 162 with 88 and 99 units respectively. In 2011, Roxy expanded its capabilities with the 251-unit Spottiswoode 18 project. Today, Roxy s portfolio includes small projects like the 30-unit TREESCAPE and larger ones such as the 193-unit Natura@Hillview. Advantage of Being Nimble: We think that small projects offer the advantage of low land cost as they are less sought after by large developers. Moreover, they are easier to micro-manage to maximize efficiency and saleability. Given the smaller number of units, it is also easier for such projects to achieve high takeup rates. Roxy s upcoming launch is a 42 unit development at Mackenzie Road. In term of unit types, Roxy has in recent years adapted to design more small/compact units. Earlier projects tend to offer larger units of 900 to >1,000 sq. ft. each. The Nova 88, which was launched in 2009, had an average gross floor area per unit of about 900 sq. ft. per unit. Since then, the average unit size for most projects range between 500 sq. ft. to 700 sq. ft. per unit. In a nutshell, Roxy s know-how to develop different types of properties will allow it to change its product offerings to meet market trends. Strong Emphasis on Innovation: During our meeting with Roxy, the management emphasized a strong focus on creating new ideas that add value to a project. For instance, the company built on the small residential unit concept to roll out small retail units (<200 sq. ft.) and office units (<600plus sq. ft.), as well as compact three bedroom (3-BR) units (>600 sq. ft.). At the EON Shenton, the high ceiling/double volume concept was stretched further to allow as many floors as possible to have unblocked sea or city views with residential units starting from the 23 rd floor onwards which may very well be equivalent to the 35 th floor (or higher) of an existing office building in the area. Page 9 of 22

10 Figure 12: Examples of Developments with Compact Retail/Office Units Shops Restaurants Office GFA (sq.ft.) 1,368 3,918 37,884 No of Units Avg GFA/ Units (sq. ft.) Centropod@Changi Shops Restaurants Office GFA (sq.ft.) 18,592 2,025 39,872 No of Units Avg GFA/ Units (sq. ft.) EON Shenton Residential Shops Office GFA (sq.ft.) 88,935 5, ,684 No of Units Avg GFA/ Units (sq. ft.) Millage Residential Shops GFA (sq.ft.) 37,636 16,812 No of Units Avg GFA/ Units (sq. ft.) How Small Can Units Go? Product Positioning is Key: There is some thought that the new HDR/HDA units may render small units harder to sell. Small units have been popular in part due to them catering to underserviced segments, such as singles. Moreover, their low quantum and hence, affordability have made them more accessible to young buyers and early upgraders. Roxy s Feb 2012 launch TREESCAPE is 100% sold within two months. Millage, launched in Mar 2012 is 99% sold within one month. Roxy s current 1-BR/2-BR offerings at Natura@Hillview and EON Shenton are reasonably sized; at 441 sq. ft. to 657 sq. ft. and 527 sq. ft. to 786 sq. ft. respectively. We have to bear in mind that the market has been accepting shoebox units of less than 500 sq. ft. in size for some time now. Compact 3-BR units (>600 sq. ft.) are available at TREESCAPE and Natura@Hillview. We note that TREESCAPE has been fully sold and that compact 3-BR units make up for only 42 (22%) out of 193 units at Natura@Hillview. Compact 3-BR units are new to the Singapore market (low supply) and are aimed at a new target group families possibly HDB upgraders given the low quantum of about S$0.8m/unit onwards. As a first mover of such products, Roxy should be able to find buyers for these units. Product Review: We further reviewed some of Roxy recent and upcoming projects and noted that they typically have unique selling points that demonstrate Roxy s emphasis on quality, while being sold at reasonable prices comparable to surrounding developments. The MKZ (100% developed by Roxy) Location 131 Mackenzie Road Tenure Freehold Launch Jun Jul 2012 (Estimated) TOP Dec 2016 (Target: Mar 2015) No of Units 42 residential (R) GFA (sq. ft.) 27,082 (R) Avg. GFA / Unit 645 (R) Avg. Land Cost S$912 psf of sellable area. ASP (S$/psf) S$1,800 S$1,900 Page 10 of 22

11 Key Notable Attributes: One of the few, if not the only, new development in the Mackenzie/Sophia Road side of the Istana vicinity at the moment. Most new developments are in the Cavenagh/Orchard side of the Istana, Novena and Dunearn Road area. Moreover, The MKZ is situated about 500m away from the Little India MRT station and its adjacent amenities. Transactions for new sales at developments on the Cavenagh/Orchard side of the Istana (Hijauan and Waterscape at Cavenagh) averaged around S$1950 to S$2450 psf. As such, the MKZ is being priced very competitively with ample room for profit. Figure 13: Vicinity of The MKZ The Nova 48 and Nova 88 fully sold developments by Roxy in the Balestier Road area. We include them in Figure 13 for information purpose. Figure 13 does not include all private developments in the map. We counted 40 developments with new sales caveats lodged with URA in 1Q Due to space constraints, we only show several of them. However, none of them are adjacent to The MKZ or in the Mackenzie/Wilkie Road vicinity Source: Google Maps, SIAS Research EON Shenton (JV development by five partners Roxy has 20% stake) Location 70 Shenton Way Tenure 99-year Launch Apr 2012 TOP Dec 2019 (Target: Jun 2016) No of Units 132 residential (R), 98 offices (O), 23 shops (S) GFA (sq. ft.) 88,935 (R), 117,684 (O), 5,329 (S) sellable area Avg. GFA / Unit 674 (R), 1,201 (O), 232 (S) Avg. Land Cost S$946 psf of sellable area. ASP (S$/psf) S$2,200 S$2,750(R),S$2,150 S$3,000(O),S$4,000 S$4,980(S) Take-Up Rate >40 of 66 apartments, >30 of 50 offices and all 23 shops launched were sold as at 4 Apr Key Notable Attributes: To provide as many units as possible with unblocked views, the EON Shenton was designed with tall ceiling heights of 5 m. for shops, 4.8 m. for offices and 3.3 m. for residential units. For instance, the 14 floors of office space, from Level 7 onwards, will have a combined height of about 67.2m equivalent to 26 to 27 floors of space of 2.5m height each. Source: Company Page 11 of 22

12 The developer took care to price residential apartments with sea views at a 20% premium above city-facing units to ensure that both types of units will see takers. Prior to its launch, the developer has already sought market feedback on prices to determine the appropriate margin. Prices at EON Shenton are relatively attractive. Over at the freehold Oxley Tower, average prices are street level shops: S$6,653 psf., 2 nd /3 rd floor shops: S$4,820 psf. and offices: S$3,048 psf.. Units at the Altez and Skysuites@Anson were previously sold at average prices of about S$2,100 to S$2,500 psf partly due to them having more low-floor units. We expect EON Shenton to contribute about S$45m of gross profit to Roxy equivalent to 1.6x its 2011 property development gross profit. Figure 14: Vicinity of EON Shenton The Clift One Shenton Marina Bay Suites Robinson Square Oxley Tower Spottiswoode 18 Skysuites@Anson Lumiere Altez Eon Shenton Source: Google Maps, SIAS Research Natura@Hillview (JV development Roxy has 49% stake) Location Hillview Terrace Tenure 999-year Launch Mar 2012 TOP Dec 2016 (Target: Sep 2015) No of Units 193 residential GFA (sq. ft.) 115,382 sellable area Avg. GFA / Unit 598 Avg. Land Cost S$600 psf of sellable area. ASP (S$/psf) S$1,200 S$1,300 Take-Up Rate 70 out of 73 units launched as at 4 Apr Source: Company Page 12 of 22

13 The longer tenure of the project (999-year) justifies a closer pricing to that of The Hillier an integrated mall-cum-residential development also in the Hillview area, which has a 99-year lease. Units at The Hillier were sold at about S$1,300 psf. Figure 15: Vicinity of Natura@Hillview Example of Land Amalgamation Strategy to Lower Costs The Hillier was acquired at S$673 psf. ppr. Part of the Natura@Hillview site was acquired at S$662 psf. Subsequently the company amalgamated the surrounding land to lower its cost to the current S$600 psf. (based on the new net sellable area). Source: Google Maps, SIAS Research Tapping on Strengths of Partners: We further noticed more joint-venture developments in recent years from one JV launch in each of 2010 and 2011 to three JV launches in Roxy pointed out that it has adequate financial resources on its own for the projects thus far. Some of the JVs were collaborative efforts to jointly acquire the site and avoid confrontational bidding. Most of the time, the objective of a JV is to allow the partners to pool their respective expertise in e.g. design, construction and marketing and to share development profits. For instance, the JV project gets higher construction priority or access to the best sales agents depending on the partner of the project. Figure 16: Probable View from Top Floor Unit at TREESCAPE The TREESCAPE site was acquired for its unblocked view of the Siglap Park Connector, the Siglap Canal and developments on the other side of the canal. Launched in Feb 2012, the TREESCAPE was fully sold within two months. Based on the planned GFA of 22,521 sq. ft., the TREESCAPE had a land cost of about S$666 psf. Average selling prices are about S$1,200 to S$1,400 psf. Figure 16 was extracted from the product brochure. The view from the property when completed may differ slightly. Page 13 of 22

14 Inventory Levels Remain at Low to Moderate Levels On the whole, Roxy s sales of launched properties have been strong. Residential units launched in 2012 have been 93% sold an improvement from 87% in Of the 305 retail units launched since 2010, only 4 units are unsold (1% of total). Office sales have been slower at 70% in 2012 and 33% in 2011 of launched units probably due to project specific reasons. As at 4 Apr 2012, Roxy has another 228 residential units to be launched, equivalent to only 19% of all uncompleted units, mainly from the Natura@Hillview project, and another 48 office units to be launched at EON Shenton. Unlaunched units are not too much of a concern right now, given that recent sales have been strong. Figure 17: Estimated Sales As at 4 Apr 2012 Take-Up Rate (% of Launched Units) Spottiswoode available units (4.4%): The 11 remaining units are mainly penthouses, which are generally slower moving. As the showroom has been removed to make way for construction, the penthouses are expected to be sold closer to expected TOP date in With 96% of the units sold, this project is expected to be profitable. % Launched & Unsold (% of ALL units) % Unlaunched (% of ALL units) By Year of Launch No of Units Launched Sold Launched & Unsold Unlaunched Residential (Includes The MKZ) % 0% % 13% % 4% 49% Total % 6% 19% Retail % 0% 0% % 3% 0% % 0% 0% Total % 1% 0% Office % 67% 0% % 15% 49% Total % 45% 21% No. of units sold are estimates gathered from various sources. They need not necessarily match URA caveats lodged due to timing differences and the fact that Roxy s count as at 15 Feb 2012 is based on option-to-purchase. Source: Various Sources, Company, SIAS Research All instances of estimated number of unsold units in this section are as at 4 Apr Page 14 of 22

15 Nottinghill Suites est. 37 available units ( 30%): This project was launched in Jul 2011 and saw slow initial take-up due to marketing issues, which have since been resolved. Located at Toh Tuck Road, Nottinghill Suites is allegedly the first shoebox concept in the vicinity and will be a rare offering in the area following guidelines by URA to restrict unit size to a minimum of 753 sq. ft. in selected zones. As take-up rate has climbed steadily in 2012, we expect inventory at this project to be gradually taken up. Nottinghill Suites Take-Up Rates Jul 2011 Launch Aug % Nov % 15 Feb % 7 Mar % 4 Apr 2012 est. 70% Centropod@Changi est. 37 available office units ( 19%): Centropod@Changi was only launched in Dec 2011 and was 68% sold by 15 Feb By 4 Apr 2012, we estimate that Centropod@Changi is already 81% sold. As such, month-to-month sales at Centropod@Changi are proceeding at an acceptable pace and the entire project should be sold within this year. WiS@Changi est. 4 retail units and 54 office units are available ( 68%): This is probably the slowest project in Roxy s portfolio at the moment. Retail units have largely been sold, leaving office space as the bulk of the inventory. The Millage (est. 100% sold), Centropod@Changi and WiS@Changi are all located within 200m to 300m of each other along Changi Road. WiS@Changi is an asset addition and alteration project, while the other two developments will be rebuilt from scratch. As such, they are currently more popular with buyers. There is scope for WiS@Changi to be marketed at a relative value basis as Roxy has priced the office units at WiS@Changi at a slight 10% discount from units at Centropod@Changi. Roxy is also contemplating keeping some units as investment properties as WiS@Changi may see more interest following the completion of Centropod@Changi and Millage in the future, alongside the development of the Paya Lebar Central new commercial hub. Figure 18: Vicinity Map of WiS@Changi 1) WiS@Changi, 2) Centropod@Changi, 3) Millage, 4) Jupiter 18 (a project by Roxy that is under construction) WiS@Changi was acquired at S$822 per sq. ft, based on the post-asset enhancement floor plan. URA data showed that office units were sold at S$1,500 to S$1,600 per sq. ft., while shops positioned along Changi Road were sold at an average price of S$3,600 per sq. ft. As an asset enhancement project, construction costs will be relatively low. Therefore, there is a relatively wide profit buffer built into this project. Page 15 of 22

16 Hotel & Investments to Provide Recurring Income A) Hotel A Significant Growth Driver in 2011: The Grand Mercure Roxy Singapore (GMRS) contributed 43.7% of total profit before tax (PBT) growth of S$5.3m. PBT from the GMRS grew by 20.3% year-on-year from S$11.4m in 2010 to S$13.7m in 2011, driven by higher average room rates. Average room rate rose by 13.2% from S$166.4 in 2010 to S$188.3 in Occupancy rate improved marginally from 94.2% to 94.6%. Figure 19: Hotel Revenue and Op. Profit Figure 20: Hotel Operating Statistics S$m S$ % 94.0% 92.0% 90.0% % 86.0% 84.0% 0 FY07 FY08 FY09 FY10 FY11 Revenue Net Operating Profit % FY07 FY08 FY09 FY10 FY11 Average Room Rate RevPar Average Occupancy Rate Competitive Attributes: Although the GMRS is not located in the downtown area, it is 15 minutes drive away from key destinations such as the Changi Airport, Marina Bay, Suntec City and Orchard Road. As a hotel, it offers a full suite of facilities for visitors, such as a selection for five restaurants and bars for guests to wine and dine at. GMRS rooms are spacious. Its smallest room is about 32 sq. m. in size or 343 sq. ft., about half to 2/3 of a compact apartment. Managed by Leading International Hotel Operator: Roxy contracts the management of the GMRS exclusively to the Accor Group, subject to contract renewal after Dec Roxy will in turn pay the Accor Group a royalty fee based on the total revenue of the hotel and a management fee as a percentage of gross operating profit. In addition, it contributes to a shared marketing fund to promote and market the Grand Mercure Brand. Access to Customers via Accor s Network: The Accor Group operates in more than 90 countries and in Singapore alone manages four hotels under three different brand names. As the GMRS can ride on the Accor Group s marketing activities, its international room reservation system and knowledge of local and international room rates, keeping hotel occupancy at optimal levels should not be challenging. Page 16 of 22

17 Role of Owner: As the owner, Roxy implements improvement and upgrading projects, e.g. the creation of new function space, upgrading of restaurants and addition of rooms from underutilized facilities. Roxy now has 569 rooms versus 483 rooms in Our View on GMRS: From this perspective, the GMRS can be seen as a sustainable business with healthy profitability, albeit with some volatility in performance from year to year as room rates fluctuate. Previous Work on GMRS Hotel 2000: Commence operations 2006: Upgraded lounge 2007: Increased rooms to : Increased rooms to 569 While the GMRS may benefit from the growth of the tourism industry in Singapore, we see the property development segment as a more relevant growth driver in the coming years as Roxy recognizes its huge progress billings as revenue. In our forecasts, we assume 2% annual top-line growth and stable margins for the hotel ownership segment. But There is Scope for Long Term Growth: Roxy has toyed with larger growth ideas for the hotel ownership segment, such as the addition of another hotel (which requires a site of attractive return on investment), resizing the rooms to effectively double room count (which is very disruptive towards operations) or monetizing the hotel for reinvestment in other businesses (which requires a business of substantially favourable risk/reward profile). We felt that Roxy s key focus continues to be on property development and that these options for the hotel ownership segment are not sufficiently attractive to the company right now. B) Investment Properties: Roxy earned S$1.8m of gross profit, mainly rental income, from investment properties in % lower than the S$2.4m earned in The decline was largely due to the expiry or termination of leases following the redevelopment of Kovan Centre. Kovan Centre has since been demolished to give way to the construction of Space@Kovan. Consequently, the property was reclassified from investment property to development property on Roxy s balance sheet. In the process, a fair value gain of S$9.6m was recognized in We expect Roxy to make about S$2m of annual revenue from investment properties over our three-year forecast horizon of 2012 to 2014 about S$0.6m lower than that of 2011 to account for the demolition of Kovan Centre. Fair Value Gains From Investments: Roxy made S$13.5m (2010: S$10.0m) of fair value gains from its 46 shops at Roxy Square Shopping Centre in 2011, bringing total fair value gains in the year to S$23.0m. There has been no announced plan to enhance the Roxy Square Shopping Centre. As such, we do not incorporate any further fair value gains out of Roxy Square Shopping Centre in our forecasts to be conservative. Roxy s 46 shop units are valued at S$44.7m as at end Dec Roxy owns 51 shop units at Roxy Square. However, five of the units are accounted at cost as they are used by Roxy as offices. Page 17 of 22

18 May Add More Investment Properties: According to media articles, Roxy and the other co-developers of EON Shenton may keep four floors of offices Levels 15, 17, 19 and 21 for investment, possibly via the same JV developer entity. Some of the unsold office space at may also be retained as investment property when completed. We do not assume the conversion of any developed property to investment property in our forecasts as these moves have not been confirmed by the company. Again, we prefer to focus our assumptions and forecasts on the core property development segment. Forecasts, Valuation and Risks Key Assumption: In our forecasts, we assume that Roxy will be able to sell all of its properties that are in its current pipeline. This simplifies the forecasting process and reduces sources of estimation error, i.e. the take up rate for each project at the end of each period. Our assumption is reasonable as older projects by Roxy are seeing some sales month-to-month, as we have highlighted in an earlier section, and they will probably be fully sold over time. Moreover, Roxy has the option of converting developed properties to investments and recognize the development profit as fair value gains. More Profits to Come from Associates: Five of Roxy s current projects, EON Shenton and Natura@Hillview, are JVs with other partners. As Roxy owns less than 50% of these proejcts, sales revenue from these associates will not be recognized as a line item in Roxy s financial statements. Instead, Roxy s share of profit out of them will be disclosed in the income statement. Financial Summary and Forecasts: Property development revenue fell by 21.6% in 2011 to S$132.6m, due to the completion of several projects and the gap in activity until the commencement of construction of newer projects. As a result, PBT for the property development segment fell by 31% in Property development gross margin was slightly lower in 2011, but still above 20%. We expect Roxy to post strong property development revenue growth of >40% in FY12 due to the ramp up of construction of larger projects such as Spottiswoode 18 and Space@Kovan which have combined progress billings of S$383.3m as at 15 Feb Such a high growth rate is also not unforeseeable as Roxy s property development revenue grew by 36.2% in Associated companies contributed S$0.3m of profit in We expect associates to contribute S$3.1m of profit in FY12F and S$21.5m in FY13F. Associates will be a crucial growth driver with more projects being JVs. However, we expect Roxy to post slower net profit growth of just 1.0% in FY12F, followed by 18.1% in FY13F. This is because Roxy s FY11 profit was elevated by fair value gains of S$23.0m. We do not incorporate any fair value gains into our forecasts. Page 18 of 22

19 Figure 21: Financial Summary S$m FY07 FY08 FY09 FY10 FY11 Revenue Property Development Hotel Property Investment Gross Profit Property Development Hotel Property Investment Profit Before Tax Property Development Hotel & Property Investment Group Revenue Gross Profit PBT Profit after Tax Gross Margin 40.8% 42.8% 35.5% 32.5% 34.4% Pre-Tax Margin 23.3% 23.4% 22.2% 24.5% 31.9% Fair Value Gains on Investment Properties Valuation: We value Roxy s development gains at S$168.2m at a cost of equity of 10%. Inclusive of the book value of its equity and the revaluation surplus on Grand Mercure Roxy Singapore, we value Roxy at S$721.1m. To be conservative, we included a 20% discount to our gross valuation, thus arriving at a value of S$576.9m, or S$0.906 per share (pre-bonus issue). The ex-bonus issue valuation is S$0.605 per share. Key Risks: 1) There are concerns that property prices in Singapore may moderate further. As such, our 20% discount to RNAV will keep our valuation relevant even if property prices moderate somewhat. For the same reason, we also do not include a perpetual component to our valuation of Roxy s development segment to avoid valuing the perpetual component from a high base. We note that Roxy can continue to grow its property development segment so long as new projects can afford a reasonable rate of return. However, the revaluation surplus on Roxy s hotel and the fair value of its shop units may be reduced in a weak property market. 2) On a gross debt to equity basis, Roxy may seem highly leveraged at 2.3x equity. However, the bulk of Roxy s debt is loans for the development of sold projects they can be repaid when Roxy receives payment from the buyers. Only S$109.0m is for unsold projects as at Dec Moreover, net debt to equity, which takes into account cash in bank, is about 1.2x. Finally, we also highlight that the book value of Roxy s equity does not fully reflect the value of its hotel. Net debt to adjusted net assets value as at Dec 2011 was actually at a very comfortable 45.5%. Page 19 of 22

20 Figure 22: Valuation Property Development (Inclusive of associates) FY12F FY13F FY14F FY15F FY16F Revenue Gross Profit Other Expenses Tax Development Gains Discount Rate PV of Development Gains Total PV of Development Gains BV of Equity Risk Free Rate 2.5% Revaluation Surplus on Hotel Beta 1.0 Value of Equity (S$m) Market RP 7.5% Discount to 20% Cost of Equity 10.0% Adjusted Value of Equity Number of shares (m) Value per Share (S$) Source: SIAS Research Based only on existing and known projects, their current ASPs, available GFA and estimated TOP dates. Figure 23: Roxy s Debt Profile Source: Company Presentation Slides Page 20 of 22

21 Figure 24: Financial Forecasts and Estimates S$m FY09 FY10 FY11 FY12F FY13F FY14F Revenue Property Development Hotel Ownership Property Investment Gross Profit Share of Associates' Profit Fair Value Gains EBIT + Fair Value Gains Net Profit Total Current Assets Total Non-Current Assets Total Current Liabilities Total Non-Current Liabilities Total Equity Revalued Net Assets Value (RNAV) Cash from Operating Activities Cash from Investing Activities Cash from Financing Activities Net Change in Cash Gross Margin 35.5% 32.5% 34.4% 36.8% 35.2% 36.0% Net Margin 17.1% 19.7% 27.0% 20.8% 25.7% 26.6% Return on Common Equity 22.9% 28.2% 26.2% 22.2% 22.3% 23.5% Return on Assets 6.7% 8.3% 7.4% 6.3% 7.2% 9.6% Net Debt / RNAV 46.9% 50.9% 45.5% 41.5% 38.3% 37.2% Current Ratio EPS (S cents) BV / Share (S cents) RNAV / Share (S cents) PER P/BV P / RNAV Per share data and ratios have been adjusted to reflect post-bonus issue values for easier comparison. Revalued Net Assets refers to fair value surplus on hotel, plus book value of equity; do not include development gains valued in our valuation. Page 21 of 22

22 Rating Definition: Increase Exposure The current price of the stock is significantly lower than the underlying fundamental value. Readers can consider increasing their exposure in their portfolio to a higher level. Invest The current price of the stock is sufficiently lower than the underlying fundamental value of the firm. Readers can consider adding this stock to their portfolio. Fairly Valued The current price of the stock is reflective of the underlying fundamental value of the firm. Readers may not need to take actions at current price. Take Profit The current price of the stock is sufficiently higher than the underlying fundamental value of the firm. Readers can consider rebalancing their portfolio to take advantage of the profits. Reduce Exposure - The current price of the stock is significantly higher than the underlying fundamental value of the firm. Readers can consider reducing their holdings in their portfolio. IMPORTANT DISCLOSURE As of the date of this report, the analyst and his immediate family may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add or dispose of or may be materially interested in any such securities. Portfolio structure should be the responsibility of the investor and they should take into consideration their financial position and risk profile when structuring their portfolio. Investors should seek the assistance of a qualified and licensed financial advisor to help them structure their portfolio. This research report is based on information, which we believe to be reliable. Any opinions expressed reflect our judgment at report date and are subject to change without notice. This research material is for information only. It does not have regards to the specific investment objectives, financial situation and the particular needs of any specific person who may receive or access this research material. It is not to be construed as an offer, or solicitation of an offer to sell or buy securities referred herein. The use of this material does not absolve you of your responsibility for your own investment decisions. We accept no liability for any direct or indirect loss arising from the use of this research material. We, our associates, directors and/or employees may have an interest in the securities and/or companies mentioned herein. This research material may not be reproduced, distributed or published for any purpose by anyone without our specific prior consent. Page 22 of 22