Wing Tai Holdings (WINGT SP) - UOB Kay Hian 2017-05-24: Bringing It All Back Home

Wing Tai Holdings (WINGT SP) - UOB Kay Hian 2017-05-24: Bringing It All Back Home WING TAI HLDGS LTD W05.SI

Wing Tai Holdings (WINGT SP) - Bringing It All Back Home

  • Wing Tai Holdings announced an unconditional cash offer for Wing Tai Malaysia (WTM) at a compelling 53% premium to last traded price. 
  • Completion of the acquisition will still leave Wing Tai with S$1.45b in debt headroom for inorganic growth. 
  • We have factored in the potential RNAV accretion of the takeover (as if complete basis) into our new target price of S$2.61 (previously S$2.54). 
  • Maintain BUY.



WHAT’S NEW


Unconditional cash offer for WTM by Wing Tai Holdings. 

  • The Cheng family and its related entity (Wing Sun) will offer RM1.80 per share for the remaining 33.9% stake in Wing Tai Malaysia (WTM) that it does not own. Maybank is the financial advisor for this takeover exercise.
  • Offer price comes at a 52.5% premium to WTM's last traded price (71.4% premium to WTM's 6-month VWAP) at an implied P/B of 0.66x. The offer price translates to about RM290.7m for all Offer Shares (assumed maximum consideration). 
  • The offer will be funded through deployment of Wing Tai Holding's (Wing Tai) internal cash balances (S$748.0m as of 31 Mar 17).


STOCK IMPACT


Rationale for proposed privatisation. 

  • Wing Tai has cited greater flexibility in carrying any potential restructuring of WTM as a reason for the offer. We also opine that it could likely be due to WTM’s steep discount to book (0.43x P/B before trade suspension) implying > 57% discount to RNAV (ascribing zero value to future development profits).

Net gearing could increase to 9% from 6% (as of 31 Mar 17). 

  • This assumes the entire consideration of RM290.7m is entirely satisfied by Wing Tai’s cash balance of S$748m and consolidating the additional equity from WTM (approximately S$46m).

Still leaving significant debt headroom for acquisition-led growth. 

  • With some S$1.45b in debt headroom (assuming comfortable net gearing level of 50%), we reckon Wing Tai could be well poised to further deepen its footprints in Malaysia (post privatisation completion). 
  • According to management, Malaysia remains among one of the most attractively priced property markets in Southeast Asia, with policies friendly to private home developers. China has also been flagged as a potential market, especially in tier-1 and tier-2 cities where it believes housing demand has outpaced supply, bolstered by rising middle-class income and a relatively young population. 
  • We also do not rule out further acquisitions in Australia, given last August’s A$31.5m acquisition of a 7-storey carpark in Melbourne’s Flinders Street.

Nascent pick-up in Singapore sales… 

  • The Crest enjoyed a healthy pick-up in sales, with sales in April eclipsing that of 1Q17. 
  • We would not be surprised if this project sees further home-buying interest due to its proximity to Stirling Road, which saw an exuberant land bid of S$1b (S$1,051 psf ppr).

…despite persistent pressure on residential prices. 

  • Nevertheless, URA flash data in 1Q17 continued to reflect anaemic performance across the residential market. The overall price index has extended its slump over 14 consecutive quarters from 3Q13’s peak. The total number of new private residential units sold islandwide in 1Q17 was 2,962 units, a 109% increase from the 1,419 new units sold in 1Q16. 
  • We expect property prices to bottom out this year, correcting 15-20% from their peaks in 2013, and then rise 2-4% next year in line with GDP growth.

Earnings and book value accretion on a pro-forma basis. 

  • Wing Tai could see EPS increase 36.3% and NTA per share increase 1.5% vs FY16.


VALUATION/RECOMMENDATION

  • Maintain BUY with higher target price of S$2.61 (from S$2.54), pegged at a 25% discount to our raised RNAV of S$3.48/share (previously S$3.39/share). 
  • We have refreshed our RNAV estimate by factoring in the take-out price of WTM, instead of its market ascribed share price.


SHARE PRICE CATALYST

  • Relaxation of property measures in Singapore and substantial overseas acquisitions.
  • Increased sales from Le Nouvel Ardmore.




Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2017-05-24
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.61 Up 2.540



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