At one point, Oxley Holdings (SGX:5UX) generated a returns on equity (ROE) of 88%.
That means, for every dollar invested, Oxley returned shareholders S$0.88.
That’s heck a lot for a property developer.
Between 2011 and 2017, Oxley was a profit machine, growing networth by 1,045% — from S$131 million to S$1.5 billion. That’s impressive.
A company’s networth is its shareholders’ equity. Some call it the book value.
You see, in 2011, Oxley found its niche in building “shoebox” apartments.
Then, in 2014, Oxley produced its first billion dollar revenue. It completed 13 iconic projects including Devonshire Residences, [email protected], Oxley Edge Floraville/Floraview/Floravista.
Oxley rode on a massive property upswing when smaller apartment units were a rage. It hit the peak of S$0.58 per share, twice.
Today, Oxley’s shares are down more than 63.7% since 2018.
Source: Yahoo! Finance
So what happened?
The problem with property stocks is its cyclical nature.
On one hand, developers are at the mercy of government property cooling measures. And the other, rising land prices.
At any point, property developers’ revenues and costs are largely controlled by the government.
That’s why, big boys like CapitaLand, City Development, UOL tend to fair better because of access to land auctions at favorable prices.
As a smaller developer, you want to have a niche in the property development business.
So Oxley focused on making tiny apartments instead. And that paid off. Oxley produced an average 30% gross profit margins at its peak.
But what I don’t like about niche Singapore property developers is they don’t defy the law of capitalism.
Let me explain.
Oxley’s high gross margins attracted a lot of other developers.
And this competed away Oxley’s profit margins. That’s why over the last few years, Oxley’s gross margins have dropped year after year, going below 20%.
It’s tough business.
And since land prices keep going up, it’s hard to produce a steady profit margin in Singapore.
That’s why Oxley ventured aggressively overseas.
In fact, since 2018, Oxley struggled to create more value for its shareholders. That caused its share price to crumble.
But that’s not the end of the story.
Will the real problem please stand up?
In 2019, Oxley racked huge losses.
Side note: for property developers, remove huge gains that was received from property price increase. That’s because these are considered “one-off” gains. It doesn’t tell you how well developers build and sell their properties.
If you’d remove these huge price appreciation from profits, Oxley would have made losses of S$67 million.
Source: Company Presentation
Then in 2020, the COVID pandemic caused construction delays. Oxley racked a further S$251 million of losses.
In its latest financial results 2021, Oxley produced S$1.3 billion of revenues, a massive growth of 33%. But here’s the thing. It only made S$70 million before taxes. That’s a measly 5% profit margins.
Can Oxley continue to reward shareholders with dividends?
Over the last three years combined, Oxley paid a total S$360 of interest on its huge borrowings. That’s massive. In 2021, its debt grew to S$2.5 billion.
For every dollar shareholders invest, Oxley borrowed another S$2.50 of debt. That’s risky business.
And it’s not the kind of leverage you want to take.
Is there any upside at all for this overleveraged developer?
Oxley still has S$1.9 billion worth of projects to sell, most of which are Singapore private residential projects. With the bullish property market and rising prices, this could be a tailwind for Oxley.
Source: Company Presentation
Construction projects have slowly resumed as Singapore achieved more than 80% vaccination rollout.
If you’ve deeper insights to Singapore’s private residential markets, perhaps Oxley is a great way to play this.
But as a long term dividend investor, this is going to be tough.
Oxley’s dividend pay out is spotty at best. Some years it paid good dividends, some years it was bad. Last year, Oxley paid S$0.018 per share. That’s a 8.5% dividend yield.
But the thing is, it’s hard to tell whether these dividends can be sustainable. Especially when Oxley relies heavily on debt to run its business.
In its latest financial results, Oxley rewarded shareholders only S$0.025 cents per share dividends. That’s a 1.1% dividend yield. Way lower than it was the previous year.
I’m not the best person to look at properties. And Oxley shares are probably best for people with sharp property insights.
For me, nothing is exciting from this Singapore developer right now.
Sometimes investing can be simple.
Always here for you,
Willie Keng, CFA
Founder, Dividend Titan
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