Roxy Pacific Hldgs Ltd (OCBC)

Maintain HOLD
Previous Rating: HOLD
Current Price: S$0.46
Fair Value: S$0.51

Acquisition of site at Hillview Terrace

Acquired site at Hillview Terrace. Roxy-Pacific's (ROXY) 45% associate, Mequity (Hillview) Pte. Ltd, recently acquired a site at Hillview Terrace for S$45.0m. This site consists of factory buildings on seven adjoining land lots which were acquired individually from several parties. Note that this transaction is not an en bloc sale and hence does not need approval from the Strata Title Board. The size of the plot is 49,164 sq ft with an allowable GFA of 94,395 sq ft (plot ratio 1.92). Including an estimated 17.5m development charge, this translates to a cost of $662 per sq ft per plot ratio. We note that Mequity has another project near by - Nottinghill Suites at Toh Tuck Rd. We believe the Hillview Terrace project would launch in 4Q11 neatly after Nottinghill's launch in Jun 11, and some synergy could be der ived between execut ing both projects. In our view, the Hillview Terrace project will break even at $1,036 per sq ft and could achieve an average selling price (ASP) of $1,200 psf, if given a small average unit size (~500 sq ft). This would yield an attributable net present value (NPV) of $5.9m and accrete 1 cent to our RNAV.

Possible short-term catalysts in 3Q11. We expect Nottinghill Suites at Toh Tuck Rd to launch in Jun 11. There are an estimated 124 units in total, with most of them being 1-2 bd units at an average size of 500 sq ft. Early indicative prices appear to start at $650k for a 400 sq ft unit, translating to an ASP around $1.6k psf. Total quantum prices for most units across the project would be capped at an affordable level below $1m. We think it is possible ROXY could hit these price levels given the $1.4k psf achieved for smaller units (<500) sq ft at the 999-year Terrene launched near by last year. Strong sales at Nottinghill could be a short-term price catalyst in 3Q11. In addition, 70 Shenton Way continues to be on the market for sale. An opportunistic sale would be positive for faster capital turnover and could be another catalyst in 3Q11.

Maintain HOLD. That said, we believe ROXY's upside potential is counter-balanced by the threat of residential policy overhang as the government rethinks housing policy with a new Minister of National Development in place amidst the backdrop of unabated mass-segment private residential bullishness. We update assumptions and Nottinghill ASP to $1.4k psf. Maintain HOLD with a revised fair value of $0.51 (at 30% discount to RNAV) versus $0.49 previously.