Wing Tai Holdings Ltd - OCBC Investment 2016-02-15: A quarter to forget

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WING TAI HLDGS LTD W05.SI 

Wing Tai Holdings Ltd: A quarter to forget 

• Challenging operating environment 
• FV estimate lowered to S$2.43 
• Still see value at current levels 

Bottom line hit by challenging operating environment 

• Wing Tai’s 2QFY16 PATMI fell 85% YoY to S$1.1m mostly due to lower contributions from the property development segment, higher administrative expenses as the group closed retail outlets in Singapore and a higher tax rate; these were partially offset by stronger share of profits from associates/JVs and lower distribution expenses. 
• The topline for the quarter similarly dipped 5% YoY to S$120.6m and over 1HFY16, the group had recognized progressive sales from the Tembusu, Le Nouvel Ardmore, The Lakeview in China and Phase 2 of Jesselton Hills in Penang, Malaysia. 
• Overall, we judge that 2QFY16 earnings have come in below expectations as the operating and sales environment for the group proved tougher than anticipated. 

Domestic home prices still mired in downtrend 

• In the last quarter of 2015, domestic home prices continued its downtrend, dipping some 0.5% and now down 8.4% cumulatively over nine quarters. 
• Domestic high end sales volume remained muted over the quarter as well; according to URA records, only 4 out of 43 units have been sold at Le Nouvel Ardmore to date while none have been sold at Nouvel 18, the group’s JV project with City Developments. 
• The group, however, has seen stronger responses for its developments outside of the core central region, and The Tembusu (Tampines) and The Crest (Prince Charles Crescent) are 93% and 21% sold, respectively. 

Fair value estimate lowered from S$2.58 to S$2.43; maintain BUY 

• We incorporate softer ASPs and higher cap rates into our valuation model, and our fair value estimate dips from S$2.58 previously to S$2.43 (with an unchanged 35% RNAV discount). 
• Despite the lower fair value estimate, we continue to see significant value in Wing Tai’s shares (now at an undemanding 0.37x PB) and believe the group remains well-positioned to ride out the current down-cycle with its portfolio of prime residential and investment assets and a low gearing of 16% with S$594.4m cash. 
• Maintain BUY. 

Eli Lee OCBC Securities | http://www.ocbcresearch.com/ 2016-02-15

OCBC Securities Analyst Report BUY Maintain BUY 2.43 Down 2.58