Why Oxley Holdings Ltd Might Be Too Aggressive For Its Own Good

Making a Name For Itself

Oxley Holdings Ltd ([stock_quote symbol=”SGX:5UX” show=”name” nolink=”1″ class=”1″]) is probably a name which resonates well with Singaporeans. Even though it is not one of the mega property developers in Singapore like City Developments Limited (SGX:C09) ([stock_quote symbol=”SGX:C09″ show=”name” nolink=”1″ class=”1″]) or UOL Group Limited (SGX:U14) ([stock_quote symbol=”SGX:U14″ show=”name” nolink=”1″ class=”1″]), it is still a well-known developer in Singapore. After all, it has developed iconic residential, commercial and industrial properties. Examples of such buildings are its current flagship project, Oxley Tower (upcoming 32-storey freehold strata-titled commercial development located at the junction of Robinson Road and McCallum Street). Another is the Oxley Bizhub and Oxley Bizhub 2. It is also well-known for launching their shoe-box apartments (~500 sqft), most of which were completed between FY2010 and FY2014 (Financial Year Ends Jun). Some of these notable residential projects include Suites@Braddell, Presto@Upper Serangoon, Vibes@Upper Serangoon and Devonshire Residences.

Oxley Holdings (Oxley) was incorporated on March 2010, listed on the Catalist Board of the Singapore Exchange in October 2010 and subsequently transferred to the Main Board of the SGX-ST on Feb 2013. As at March 2017, the Group’s total assets grew to S$4.17 billion, whiles shareholders’ equity grew to S$930 million, up from S$856 million and S$131 million in FY2011. This growth was reflected by its impressive compounded annual growth rate (CAGR) of approximately 30% YoY and 38.6% YoY respectively. As at July 2017, the Group’s market capitalization stood at ~S$1.7 billion, a 1.8x multiple of its book value.

However, its use of leverage has been a concern for investors. Especially since it has been piling up huge debt in order to accelerate its project volume. Below is a simple analysis of Oxley’s leverage profile.

Leverage Is Good?

While its growth has indeed been impressive, a closer look at the balance sheet puts Oxley Holdings as one of the more aggressive property developers in term of stretching its balance sheet. In its latest financial filings 3Q2017, the Group has total borrowings of S$2.2 billion ( a mixture of bank debt + bonds), of which S$1.4 billion accounted as secured bank borrowings. Though this number has improved marginally from S$2.63 billion in Jun 2016, it has grown from just S$630 million in FY2011. We probably think this trend could continue to increase given the Group’s expansive strategy overseas, with upcoming projects in Cambodia, Malaysia and Ireland.

Using net debt/equity has a leverage yardstick, this ratio currently stands at a high multiple of 1.88x. Although that is a pretty high leverage ratio, its highest recorded leverage was during FY2012-FY2014, when it shot up to between 4.0x-5.0x. Additionally, the Group has also issued much of its “6.375% due 2021 USD-denominated bonds”, split over US$200 million, US$100 million and US$55 million after its 3Q2017 results; indicating that the company is still willing to take on more debt.


Share Price of Oxley Holdings Ltd

Playing With Fire

So far, the Group’s use of leverage has worked in its favor. In FY2014, Oxley made its first major breakthrough, accounting a record jump in revenues to S$1.07 billion. That is up 135% YoY from S$458 million in FY2013. This revenue recorded was based on a percentage of completion on construction progress in 13 of its mixed-use residential developments, including Devonshire Residences, Floraville/Floraview/Floravista, Loft@Holland, NEWest, Oxley Edge, Presto@ Upper Serangoon, RV Point, Suites@Braddells, The Promenade@Pelikat, Vibes@East Coast, Vibes@Kovan, Vibes@Upper Serangoon and Viva Vista. Oxley has diversified its property footprints overseas, aggressively bidding for project tenders in China, Malaysia, Cambodia, Vietnam and the UK. While its international presence has increased, its gearing is expected to increase consequently.

Oxley has also diversified its property footprints overseas. It has been aggressively bidding for project tenders in China, Malaysia, Cambodia, Vietnam and the UK. While its international presence has increased, its gearing is expected to increase consequently. The company has so far been able to sidestep the death grip of the use of leverage. However, it is still playing very dangerously with fire. And if you choose to play with fire, you got to be prepared to get burnt. Just ask many of the oil and gas companies in Singapore.

The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in the writer of ValueInvestAsia.com’s capacity. It does not in any way represent those of the company and other related entities. The writer has no position in Oxley Holdings Ltd.

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