Wing Tai (WINGT SP) - Maybank Kim Eng 2016-10-28: Deleveraging; Limited Upside

Wing Tai (WINGT SP) - Maybank Kim Eng 2016-10-28: Deleveraging; Limited Upside WING TAI HLDGS LTD W05.SI

Wing Tai (WINGT SP) - Deleveraging; Limited Upside


Maintain HOLD, prefer CAPL 

  • Wing Tai reported another lacklustre set of results for 1QFY17. The sharp fall in revenue led to a core operating loss of SGD4.1m. 
  • Profits for 1QFY17 was boosted by a SGD4.5m exceptional gain from the disposal of a JV. 
  • On a positive note, its cash pile rose to SGD966m. This was driven by cash proceeds from the disposal of its stakes in Nouvel 18 and Optima, partially offset by repayment of borrowings. 
  • We see near-term share price support from the impending 6 cts DPS payout, which goes XD on 4 Nov. Apart from that, we see limited upside despite cheap valuations of 0.4x P/BV. 
  • Maintain HOLD. RNAV-based TP raised slightly to SGD1.75 for updated disclosures on JVs and market value of listed units. 
  • We prefer CapitaLand (BUY, TP SGD3.93) for sector exposure.


Thin earnings base; One-off gain on disposal of JV 

  • Wing Tai made just SGD1.1m in the quarter. The sharp 59% YoY decline in revenue to SGD70m led to an estimated core EBIT loss of SGD4.1m.
  • Profits for the quarter was helped by SGD4.5m of exceptional gain from the disposal of a JV. We continue to see poor earnings visibility with slow residential sales and persistent headwinds to its retail operations.


Growing cash pile; Capital deployment in focus 

  • Wing Tai’s cash pile rose to SGD966m after the sale of its 50%-stake in Nouvel 18 to CDL for SGD411m and 40%-stake in Optima, the JV involved in the Horizon Lakeview, to Singbridge for SGD89.3m. Part of the proceeds was used to pay down SGD245m in borrowings. This resulted in a net gearing of just 0.05x. 
  • Its conservative land acquisition strategy could be tested in the coming year as we believe it needs to start replenishing its landbank to sustain its development business. Intense competition for land makes this a challenge.


Residential sales update 

  • With the developer holding prices for Le Nouvel Ardmore, we believe sales of the remaining 37 units could remain slow. Nine units remain unsold at mass market project The Tembusu, which received its TOP in Sep 2016.The Crest could continue to face challenges. 70% of this project remains unsold with less than a year before its ABSD deadline in Sep 2017. 
  • We built in SGD66m of ABSD penalty for this project.


Swing Factors


Upside

  • Stronger-than-expected sales of residential projects.
  • Return of surplus capital on its balance sheet.
  • Privatisation offer by major shareholder to avoid Qualifying Certificate penalties.

Downside

  • Poor land acquisition strategy.
  • Penalties for developments facing various project deadlines.
  • Persistent headwinds for its retail business.




Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-10-28
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.71 Same 1.710



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