Wing Tai Holdings Ltd - OCBC Investment 2018-02-13: Valuations Not Reflective Of The Cycle

Wing Tai Holdings Ltd - OCBC Investment 2018-02-13: Valuations Not Reflective Of The Cycle WING TAI HLDGS LTD W05.SI

Wing Tai Holdings Ltd - Valuations Not Reflective Of The Cycle

  • Firm set of 2QFY18 numbers.
  • Healthy balance sheet.
  • Fair Value estimate of S$2.64.

113% top-line growth 

  • Wing Tai’s 2QFY18 revenue rose by 113% y-o-y to S$130.0m, aided by the contribution from additional units sold in Le Nouvel Ardmore in Singapore, Le Nouvel KLCC in Kuala Lumpur, as well as contribution from BM Mahkota in Penang. 
  • Revenue from the units sold in the latter has now been fully recognized, given that TOP has been obtained in November 2017. About S$8.8m of other losses were recorded, due mainly to the write-off of development costs that were incurred. 
  • All-in, PATMI for 2QFY18 came in at S$12.6m (as compared to S$2.1m in the corresponding quarter last year), representing 23.0% of our full-year forecast. We deem this set of results to be broadly within expectations.

Well-positioned in the cycle 

  • In our opinion, the tide continues to be in the favour of local property developers like Wing Tai. 
  • The URA’s private residential property price index increased by 0.8% y-o-y for 4Q17, while on a full year basis, 2017 clocked an increase of 1.1%. This is in comparison to the 3.1% decline that was seen in 2016. 
  • Looking forward, we believe that Singapore home prices in 2018 should appreciate between 3% to 8%. In our view, Wing Tai should be suitably positioned to ride on this upturn, given that the group’s balance sheet remains robust, as it continues to be in a net cash position, with S$840.0m in cash and cash equivalents. 
  • The group has also increased its exposure to the domestic housing sector previously through the acquisition, with Keppel Land Limited, of a 99-year leasehold residential site in Serangoon North Avenue 1. 

Valuations undemanding 

  • Wing Tai currently trades at a consensus blended forward P/B of 0.50x, which is 0.4 S.D. below the 10-year mean. We believe that the recent market correction has resulted in attractive valuations for Wing Tai, given the current stage of the property cycle. 
  • With a change in covering analyst, we adjust our assumptions, and bring our fair value down from S$2.77 to S$2.64.

Joseph Ng OCBC Investment | 2018-02-13
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 2.64 Down 2.770