Revenue grew 4.7% YoY and 14.9% QoQ to S$43.7m on the back of progressive recognition of development properties. Of the 9 development properties which contributed to 2Q09's revenue, The Medley has obtained TOP status in May 2009.

As expected, performance of Grand Mercure Roxy Hotel deteriorated, which is in line with the overall hotel industry in Singapore. ARR continue its decline, from S$167.2 in 1Q09 to S$143.5 in 2Q09, lower than our forecast of S$157.3. However, we do see comfort in occupancy rate which dropped only slightly from 82.4% in 1Q09 to 81.6% in 2Q09. This is significantly higher than our estimate of 72%. Consequently, RevPar for 2Q09 fell 15% QoQ to S$117.1, slightly outperforming our forecast of S$113.1.

Operating expenses declined across the board, lifting Roxy's operating margin from 22.5% in 1Q09 to 26.2% in 2Q09. Management accredited result to lower hotel payroll costs including saving from job credit scheme; lower management fees payable to hotel operator; and decrease in other miscellaneous expenses. On top of that, finance cost was also lower in 2Q09 at S$0.95m due to lower bank borrowings and interest rate.

Net profit reported improved 4.8% YoY and 47.4% QoQ. Roxy's effective tax rate was lower in 2Q09 at 11.3% as compared to 19% in 1Q09 due to utilization of capital allowances and adjustment of overprovision from prior periods.

As noted in our 1Q09 report, an upward revision is likely. In the first half of FY09, Roxy managed to sell 193 residential units with total sale value of S$177.9m, more than the 151 units sold with value of S$170.1m in FY08. As of 2Q09, Roxy successfully sold 99.5% of all its projects (424 units in total). Roxy achieved total pre-sale revenue of S$417.2m, of which only S$76.5m has been recognized. The remaining S$340.7m will be progressively recognized from 3Q09 to FY11.

In view of Roxy's stellar sales performance in 1H09, we have revised earnings forecast upwards for FY09E and FY10E. Our new RNAV now stands at S$0.60. Given a revived interest in property market and stocks in recent quarters, we applied a reduced illiquidity discount of 35% to Roxy. We maintain our positive view on Roxy's business prospect and management strength and reiterate BUY with a target price of S$0.39.