Property developers tend to be priced below book value due to their capital intensive business. However, I have come across one property developer which is relatively lower valued.
Oxley is Extremely Undervalued
If one evaluates Oxley purely on its Singapore developments and existing balance sheet, the company is a gem
Thanks to the overheated property sector in Singapore, all of Oxley's projects are sold except for 2 units (worth s$3 million each). Please refer to the table below on Oxley's latest sales progress in Singapore as of 2023.
Oxley's current equity value is $1.02 Billion and with an expected profit margin of 10% from its ability to derive margin from future billings, there is another $100 million in net profits. Do note all 7 projects has TOP'd hence majority of the revenue will be recognised in the upcoming quarter.
In short the relisable net asset value of Oxley is about $1.3 billion (if we factor in the sale of the Singapore hotels it hold)
Oxley Singapore Project Billings
Novotel and Mecure Hotels in Stevens Road
In 2019, Oxley tried to sell its hotels at Stevens Road for a then $950 million consideration. Since then, property value in Singapore has appreciated by approximately 25% and the value of hotels has moved in line. To make matters worse, Oxley's hotel segment is barely turning around in its reported results and is running only at an occupancy rate of 80-90%. Hence, in my view, Oxley is better off selling off its Singapore hotel portfoilo now. Its hotels are sitting on freehold land which makes it valuable and tourism is picking up.
Signs of Poor Management
After highlighting the positives of Oxley, I will now turn to the recent misteps in the management.
As the saying goes: "All of humanity's problem lies in Man's inability to sit quietly in the room". Oxley exemplifies that. With its Singapore land bank used up and land cost soaring so high that margins for property development is tight, Oxley did the right thing to stop bidding for land to develop residential projects in Singapore. However, management decided to venture overseas which is a terrible mistake.
Foreign Residential Projects Not Selling
Oxley Tower project in KLCC and Riverscape in UK are not selling well, depsite being close to TOP, only 50% or less are sold at each project. With the rising interest rates globally, proeprty sales are slowing even further. If Oxley management is wise, post completion of its Singapore residential projects, Oxley should keep the cash, repay its debts and not invest in new projects locally or overseas. It should raise more cash by offloading its Singapore Hotel as well.
Slow Movement in Sale of Singapore Hotels
With the hotel segment underperforming, the management should consider a sale of its Steven Road hotels and use the proceeds to pay down liabilities or reward shareholders in the form of a special dividend.
Share Buyback is Slow
Due to poor managing by Oxley's management team in recent times, the share price is now only 0.3 times of the relisable value or 0.5 times the reported book value, this is signs of severe undervalue and market's perception of the lack of faith in Oxley management.
Oxley has tried to stem the sell down by constantly doing a share buyback everyday, however in my view, the volume done is insufficient. What Oxley should do is increase its share buyback speed. The company has adequate cash given that all of its Singapore projects has reached TOP stage. Even buying at 0.8 times the reported net asset value is accreditive to shareholders and not to forget, there are a slew of profitable projects in Singapore which is yet to be recognised ($1.09 billion in revenue, most will be recognised in this quarter)
In Short, Close Down Oxley and Reward Shareholders
Oxley is now akin to the notion of cigar butt investing. If closed down, the company will at least double the value to existing shareholders at the market price of $0.124 ($530 million market cap).
I feel the current management is unable to carry the company further as it does not have the benefit of a roaring housing market given its lack of land bank in Singapore.
Come next AGM, I implore shareholders to consider doing drastic measures to realise the value of the company. The management has been making poor decisions overseas which is eroding the value proposition; they have been slow in buying back shares which are value accreditive to current shareholders.
Considerations should be done to wind down the company after the early promises it has shown in the early half of the 2010 decade.
No comments:
Post a Comment