Wing Tai Holdings - CIMB Research 2016-08-23: Residential drags

Wing Tai Holdings - CIMB Research 2016-08-23:  Residential drags WING TAI HLDGS LTD W05.SI

Wing Tai Holdings - Residential drags

  • 4Q and FY16 results below our expectations, dragged down by residential margin compression. FY16 core net profit made up only 12% of our forecast.
  • Retailing turnaround is sustained while rental income has been stable.
  • Focus on boosting sales, a light balance sheet, and gearing enables reinvestment opportunities.
  • Maintain Hold. RNAV-based target price lowered to S$1.87. Total final DPS of 6 Scts proposed.

Results below expectations 

  • Wing Tai’s 4Q and FY16 results were below our expectations .4Q net profit fell 98% yoy to S$1.9m on a revenue of S$140.7m, down 35% yoy, as lower gross margins and reduced fair value gains dragged down the bottom line. 
  • Residential development activities made up 60% of the topline, while rental income contributed another 7%. The group has proposed a total final DPS of 6 Scts, translating to a yield of c.3.4%.

Lower margins drag down residential contributions 

  • Wing Tai sold S$208m worth of residential units in FY16 from The Tembusu, The Crest (associate) and Le Nouvel Ardmore in Singapore, as well as Lakeview in China and Jesselton Hills P2 in Malaysia. 
  • To date, The Tembusu is 97% sold, while The Crest is 26% taken up. However, residential development margins, which plummeted to 7% in 4QFY16 (36% for FY16) from 37% in 4Q15, was a drag on profits.

Retailing activities turn around 

  • Retailing activities reported an improved profit of S$4.2m as its earlier cost rationalisation exercises bore fruit. 
  • We expect this division to remain in positive territory going forward. Its investment property portfolio reported stable revenue.

Focus on ramping up sales to de-risk projects 

  • Looking ahead, we expect Wing Tai to continue ramping up sales from The Crest given its ABSD penalty deadline is in early-4Q17, as well as boosting the take-up at The Tembusu and Le Nouvel Ardmore. 
  • The recent sale of its 50% stake in Nouvel 18 is expected to further lighten the group’s current gearing of 0.21x and enable it to explore more land acquisitions or reinvestment opportunities.

Maintain Hold 

  • We cut our FY17-18F earnings by 1-13.5% to reflect the latest results. 
  • We maintain our Hold call as we think Wing Tai lacks re-rating catalysts amid the slow residential market in which the company is attempting to boost the sales of its projects. 
  • Our RNAV and target price are tweaked down by 4% to S$2.87 and S$1.87, respectively. There will be upside risks to our call if Wing Tai is able to recycle its capital in the short term or if it can speed up the growth of its fund management platform.

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | 2016-08-23
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.87 Down 1.950