Wing Tai - Maybank Kim Eng 2016-05-09: Overhang from Looming Deadlines

WING TAI HLDGS LTD W05.SI

Wing Tai (WINGT SP) - Overhang from Looming Deadlines

3Q16 below expectations on weaker profit margins.
Home sales at mid to high-end projects still slow and will face critical sales deadlines soon. Without better visibility, this remains a stock overhang.
Maintain HOLD and SGD1.93 TP, 16% below RNAV of SGD2.29.

Depressed market values of Wing Tai Properties and Wing Tai Malaysia are the key variance between BVPS of SGD4.08 and our RNAV.
TP derived via consistent discounts across the sector, based on the outlooks for the various sub segments.

3Q16 net income of SGD2.1m was below our expectation.
9M16 formed just 15% of our full year estimates due to weaker-than-expected profit margins.
9M16 net profit fell a steep 85% YoY to SGD5.2m.
While segmental performance was not disclosed, we believe the challenging retail scene could be a key reason for Wing Tai’s poor showing.
Furthermore, poor sales momentum at key residential projects continues to weigh on its recognition of development profits.

Home sales at The Crest, in which it holds a 40% stake, remains slow with only 10 units sold over the quarter. 359 units or 77% of the project remains unsold (as of end-Mar 2016). If the project is not completed and fully sold by its ABSD deadline in Sep 2017, we estimate that the partners will have to fork out another SGD66m in stamp duties (10% of land cost compounded at 5% p.a. for five years).

Le Nouvel Ardmore has passed its first QC deadline in April 2016 and we expect the relevant extension charges to be paid in 4Q16.
Only one caveat has been lodged since the project was de-licensed in May 15 and we estimate that 38 of the total 43 units are still unsold.
There is also no visibility on the launch of its other high-end project, Nouvel 18 (50:50 JV with CDL), which will face its first QC deadline in Nov 2016.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-05-09

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.93 Same 1.93