Roxy Pacific Hldgs Ltd - Boost from Kovan Centre gain (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$0.405

Fair Value : S$0.47

3Q11 results boosted by fair value gain. Roxy-Pacific Holdings (ROXY) reported 3Q11 PATMI of S$13.4m (up 50.5% YoY) which came in above our expectations. This is mostly due to a S$9.6m fair value gain from reclassifying Kovan Centre to a development property. 3Q11 top line came in at S$44.4m - below expectations due to slower than anticipated construction progress. We are not overly anxious about this given that all launched projects, except Nottinghill Suites and Wis@Changi, are fully sold and expect the revenue recognition lag to catch up in 4Q11.

Expect neutral reaction to results. We believe the market would be neutral on its 3Q11 results as the earnings beat came from fair value gain. Over the next quarter, the focus would continue to stay on the execution and sales at new projects - Nottinghill Suites (17% sold) and the newly launched Wis@Changi (18% sold). Centropod@Changi (80 Changi Rd) and Treescape (Telok Kurau) are also expected to launch by year end. Eon Shenton (70 Shenton Way), Millage (55 Changi) and Hillview Terrace would launch in 1Q12. In particular, we believe sales at Nottinghill Suites, after the revamping of its showflat, would be a meaningful driver of share price as the market re-evaluates the project's profitability and time-scale given increasing uncertainty in the residential sector.

Paring hotel earnings for FY12. ROXY's hotel, Grand Mercure Roxy Hotel (GMRH), continued to pull in strong numbers. 9M11 average revenue per room (ARR) came in at S$188.4, up 14% from last year and average occupancy rate (AOR) stayed at a healthy 94.1%. As a result, we see 9M11 REVPAR up 14% YoY at S$177.3. Going forward into FY12, we expect weaker numbers due to slower global growth and pare our FY12 REVPAR estimates down by 8.5% to S$162.

Reiterate BUY rating. At the current market cap of S$258m, Roxy Pacific Holdings is trading less than the independent valuation of its hotel asset alone (GMRH) at S$331m or ~S$590K per room. Excluding GMRH, there is an additional net equity of S$128m on its balance sheet. Despite uncertainty ahead, we expect earnings to be buffered by S$519m of unbilled progress billings at mostly sold-out projects and recurring income from its hotel segment (53% of 9M11 gross profit). With updated assumptions, however, our fair value estimate dips marginally to S$0.47 (30% discount to RNAV) versus S$0.48 previously. Maintain BUY.