Wing Tai - Maybank Kim Eng 2016-08-23: Special DPS surprise

WING TAI HLDGS LTD W05.SI

Wing Tai (WINGT SP) - Special DPS surprise

FY16 results were below our expectation.
We cut FY17-18 EPS 32% to build in higher corporate expenses and adjust the timing of sales recognition. Despite cheap valuation of 0.4x P/BV, we believe the stock is unlikely to re-rate due to poor earnings visibility.

Nonetheless, impending final and special DPS of 6 cts could provide share price support. Maintain HOLD and RNAV TP of SGD1.71.

FY16 net income of SGD7m missed expectations at just 35% of our fullyear estimate. While sales recognition came in slightly ahead, larger than expected corporate expenses led to the profit miss.
Management has no intention to lower prices for Le Nouvel Ardmore as it believes price cuts will not drive sales at the high-end market. It has closed 30-40 of its fashion retail stores over the past year and expects headwinds to persist.
Interestingly, it attributes challenges in the retail scene to overall market weakness and sees threats from online as overplayed.

Apart from the final ordinary DPS of 3 cts, Wing Tai announced a special payout of another 3 cts. This reflects its intention to return part of the proceeds from the sale of its 50%-stake in Nouvel 18 to shareholders.
Management provided no updates on its fund management business, but stressed that it has no intention to inject assets into this platform. It will, however, deploy capital to invest alongside other investors.

Management provided broad guidance that it could deploy more capital into Hong Kong, Malaysia, Australia and China when quizzed on future capital allocation.
According to The Sydney Morning Herald, Wing Tai recently purchased a seven-level carpark in Melbourne’s Flinders Street for more than AUD31.5m with a yield of nearly 3%. While management declined to discuss specific details, it did confirm the deal and highlighted that it will continue to evaluate deals in the country.
Without better clarity on policy measures, it will avoid buying development land in Singapore.

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.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-08-23

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.710 Same 1.710