Wing Tai (WINGT SP) - Maybank Kim Eng 2017-05-12: Unexciting Performance

Wing Tai (WINGT SP) - Maybank Kim Eng 2017-05-12: Unexciting Performance WING TAI HLDGS LTD W05.SI

Wing Tai (WINGT SP) - Unexciting Performance


Maintain HOLD; Higher TP for value of listed units 

  • The group's cautious land acquisition strategy has led to land-bank depletion and poor earnings visibility. With a low recurring income base to offset headwinds to its development business, the group is struggling to break even. 
  • We raise TP by 3% to SGD1.85, based on an implied 14% discount to our RNAV of SGD2.16, to reflect higher market value of its listed entities, Wing Tai Malaysia and Wing Tai Properties. 
  • Maintain HOLD. 
  • Prefer UOL for sector exposure.


Thin earnings base 

  • 9M17 net profit of SGD10.6m was broadly in line at 65% of our full-year estimate. 
  • Stronger associates and JVs contributions and lower interest expenses offset a weak operating performance. Unlike its other developer peers that have built a steady stream of recurring earnings, Wing Tai’s small recurring income base can barely offset its weaker development earnings. Nonetheless, the group’s balance sheet remains steady with a low net gearing of just 0.06x.


Singapore sales still slow 

  • Wing Tai managed to sell a SGD15.2m unit at Le Nouvel Ardmore in Mar’17. Two years after meeting its first QC deadline, the developer continues to hold prices at the luxury project with the latest deal done at SGD4,005 psf. 
  • Its mid-range JV project, The Crest, sold just seven units during the quarter. With 66% of the project remaining unsold and just four months before its ABSD deadline in Sep 2017, we expect the developer to pay the associated penalty.


Conservative land banking stance worked against it 

  • Wing Tai’s conservative land acquisition strategy has led to land-bank depletion and low development earnings visibility. 
  • While a strong cash balance implies that it has significant capacity to purchase new development land, we believe escalating land prices has made it increasingly difficult to do so. This, together with a thin recurring income base, will lead to weak shareholder returns near term.


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/ 2017-05-12
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.850 Up 1.800



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