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Wing Tai Holdings - UOB Kay Hian 2016-08-23: FY16 Awaiting Acquisition-led Growth

Wing Tai Holdings (WINGT SP) - UOB Kay Hian 2016-08-23: FY16: Awaiting Acquisition-led Growth WING TAI HLDGS LTD W05.SI

Wing Tai Holdings (WINGT SP) - FY16: Awaiting Acquisition-led Growth

  • Wing Tai’s results came in below our and consensus expectations. We opine that growth could be bolstered by the group’s sizeable debt headroom with acquisition opportunities in overseas markets like China, Malaysia and even Australia.
  • Management remains bearish on near-term prospects in the Singapore residential and retail segments. A special dividend of 3 S cents/share was announced, bringing total dividend for the year to 6 S cents. 
  • Maintain BUY. Target price: S$2.37.



RESULTS


Results below expectations. 

  • Wing Tai Holdings (Wing Tai) reported 4QFY16 net profit of S$1.9m (-98% yoy), bringing FY16 net profit to S$7.1m (-95% yoy). Gross revenue and gross profit declined 20% yoy and 17% yoy respectively on the lack of contributions from Foresque Residences and Helios Residences. PBT declined 89% yoy due to lower other income, higher operating expense, lower associate and JV profits and higher income tax.
  • Excluding fair value losses and disposal gains, results came in below our and consensus expectations, accounting for 45% of our full-year forecast, due to lower-than-expected sales and completion of property development projects in Singapore.

Special dividend of 3 S cents/share. 

  • This brings total declared dividends to 6 S cents/ share for FY16.
  • Net gearing (based on total equity) saw an uptick to 0.20x in 4QFY16 (3QFY16: 0.18x)
  • Revenue included contributions from The Tembusu, the sale of three units at Le Nouvel Ardrmore, the Lakeview project in Suzhou, China, as well as from Jesselton Hills (Phase 2) in Penang, Malaysia. Share of profits from associates and JV companies was down 50% yoy, mainly attributable to lower fair value gains from its Hong Kong subsidiary, Wing Tai Properties Ltd. Net tangible asset declined 0.7% yoy to S$4.04/share.


STOCK IMPACT


Growth underpinned by China, Malaysia and fund management platform.

  • Management intends to clearly demarcate the fund management vehicle (Asia Pacific mandate) from the holding company, with no intentions to inject any existing core assets.
  • Management also shared that advanced negotiations with potential investors are ongoing and Wing Tai would only sink in funds upon participation of external co-investors.

Australia flagged as potential market. 

  • In Aug 16, Australian media outlets reported Wing Tai’s A$31.5m acquisition of a 7-storey carpark in Melbourne’s Flinders Street, believed to be at a yield of 3%. Management said the acquisition was in line with the group’s strategy of exploring Australia as a potential market. 
  • While reticent on acquisition yield figures (higher than the reported 3%), management was emphatic that the car park would not be injected into the fund management platform, falling short of undisclosed internal hurdle rates.

Significant debt headroom to propel growth in China, Malaysia and even Australia.

  • With some S$2b in debt headroom (assuming comfortable net gearing level of 50%), we reckon Wing Tai could be well poised to take full advantage of acquisition opportunities in China and Malaysia, where current projects - 301-unit Malaren Gardens (Shanghai, China) 195-unit Le Nouvel KLCC (Malaysia) - will be marketed. 
  • Management has expressed stoic optimism in China, 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. 
  • Malaysia remains among the attractively priced property market in Southeast Asia, with policies friendly to private home developers.

Gloomy outlook on both residential and retail in Singapore. 

  • The URA’s residential property price index decreased 0.4% yoy in 2Q16, with 3,675 new residential units sold in 1H16 (1H15: 3,427 units sold). Management expects home buying sentiment for private residential property in Singapore to remain subdued in 2016, with continued overhang from property cooling measures. However, management remains steadfast on maintaining prices at Le Nouvel Ardmore (seven units sold at ASP of S$4,000psf), likely attaching a scarcity premium to the project.
  • On the retail front, Wing Tai has closed 30-40 stores, with the intention of shutting down non-profitable stores. However, outstanding performers like Uniqlo have bucked this trend and could well be propelling growth in this segment. However, we note the existential threat that e-commerce poses to the fashion industry, something which management reckons will continue to spell gloom for the retail scene, along with falling tourist and local expenditure.


EARNINGS REVISION/RISKS

  • We have revised 2017 and 2018 earnings downwards by 17-20%.
  • Key risks include: 
    1. continued headwinds in the residential market, particularly high-end property, and 
    2. Inability to come up with modes of action to complete sales at Le Nouvel Ardmore.


VALUATION/RECOMMENDATION

  • Maintain BUY and target price of S$2.37, pegged at a 30% discount to RNAV of S$3.39/share, factoring in headwinds to its high-end residential portfolio. 
  • We believe the easing of demand-side policy measures is on the cards post a 10-15% correction in property prices.


SHARE PRICE CATALYST

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




Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2016-08-23
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.370 Same 2.370


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