Wing Tai Holdings Ltd - UOB Kay Hian 2020-09-02: 2HFY20 A Rough Patch Before Recovery


Wing Tai Holdings Ltd - 2HFY20 A Rough Patch Before Recovery

  • As expected Wing Tai reported a weak 2HFY20, due to the COVID-19-impact on asset valuations.
  • Management sees a subdued Singapore-residential market, although its “Garden Residences” project has seen sales return with a vengeance in Aug 20 which we attribute to pent-up demand and discounting. Management continues to exercise prudence in capital management, further reducing net gearing (incl. perps) to 0.15x.
  • Maintain BUY on Wing Tai with a lower target price of S$2.04 (previously S$1.70), pegged at 30% discount to RNAV.

Wing Tai's 2HFY20 Results

Poor results as expected, given 7 Aug 20 guidance.

  • Wing Tai Holdings (SGX:W05) reported 2HFY20 (Jan 2020 to Jun 2020) loss of S$16.8m, dragging FY20 PATMI to S$16.0m (-66% y-o-y). Excluding fair value changes on investment properties, underlying net profit of the group was S$69.6m, which is 85% higher than the S$38m recorded in the previous year.
  • Wing Tai's full-year revenue grew 15% y-o-y, mainly due to the higher contribution from development properties which were attributable to additional units sold in Le Nouvel Ardmore and progressive sales recognised from The M at Middle Road in Singapore. The group’s share of profits from associates and JVs declined 77% y-o-y to S$12.1m, due to the share of fair value losses on investment properties of Wing Tai Properties (HK). NAV remained largely stable at S$4.18 (-0.2% y-o-y).
  • Wing Tai's dividend payout of 3 S cents/share in FY20 (-40% y-o-y), represents a 1.7% dividend yield. Current FY20 dividend is lower y-o-y due to the absence of a special dividend of 2.0 S cents paid out in FY19.

Plenty of firepower (S$1.1b acquisition headroom), assuming a comfortable net gearing of 50%.

  • Wing Tai’s net gearing (incl. perps) declined to 0.15x (-7ppt y-o-y), which was reduced by its S$276m cash flow generated from operating activities.

Hong Kong exposure (12.7% of GAV) sees fair value loss on investment properties

  • Hong Kong exposure (12.7% of GAV) sees fair value loss on investment properties, mainly from Landmark East (1,338,000sf Grade A Office space) and Lanson Place Hotel.
  • Wing Tai’s exposure to Hong Kong is represented by its 34.19% stake in its listed associate, Wing Tai Properties (HK). Due to the COVID-19 pandemic, Landmark East saw leasing demand slow-down leading to occupancy and rental rate declines as corporate tenants held-up leasing decisions, or started down-sizing since 2Q20.

Singapore residential sales returns with a vengeance in Aug 20 post-circuit breaker, amid pent-up demand and discounting strategy.

  • Anecdotally, property agents told us that “The Garden Residences (6% GAV)” has been offering discounts for certain slower-moving stacks below their launch-prices in Jun 18. Empirically, we looked at recent Aug 20 REALIS caveats (downloaded on 1 Sep 20), which shows certain stacks (eg 02/06/11) where higher-floor units are transacted at lower prices than lower-floor units sold at the launch weekend in Jun 18. We believe that the units are more sensitively re-priced, as the development approaches its Aug 21 TOP.
  • Another consideration may be the ongoing side-by-side competition with Oxley (SGX:5UX)-consortium’s more attractively-priced Affinity at Serangoon at S$1,492psf ASP (vs Garden Residences: S$1,573psf).

Stellar take-ups at The M at Middle Road (74% sold, 1Q24 completion) at end-Aug 20.

  • During its launch weekend in Feb 20, The M at Middle Road saw a stellar 70% take-up, achieving a S$2,450 ASP. The initial weekend take-up rate (70%) is exceptional, which can be attributed to its focus on locals’ investment demand, while most transactions (and unsold inventory) are still catering to end-users. Majority of the buyers were Singaporeans in their 30s and 40s, comprising both end-users and investors.
  • The project has strong location attributes (4-8 mins to three MRT stations, like Bugis, City Hall), low maintenance (S$250-350p.m), integrated furniture (eg sliding wardrobe, movable kitchen counter-top), and smart home features. The M is also attractively priced, as compared to nearby launches (eg Midtown Bay at S$2,903psf ASP by GuocoLand (SGX:F17)).
  • Another upcoming new launch in the vicinity is the Tan Quee Lan site which is expected to be priced higher, due to its higher land cost of S$1,535psf ppr (vs The M at S$1,458 psf ppr). The Tan Quee Lan site is expected to be priced at least in line with Midtown Bay (ie in order to avoid cannibalising sales), since both are developed by Guocoland.

Subdued outlook for residential property-buying due to COVID-19 disruption to the economy.

  • Management also pointed out that URA private new sales volumes contracted by 7.8% y-o-y to 3,863 units in 1H20, and private residential property price index stabilised by +0.3% q-o-q in 2Q20 (vs 1Q20: -1%). They also cited Singapore GDP growth revision of -7% to -5% for full-year 2020.

WingTai Holdings - Valuation & Recommendation

Peihao Loke UOB Kay Hian Research | Nicola Ho UOB Kay Hian | https://research.uobkayhian.com/ 2020-09-02
SGX Stock Analyst Report BUY MAINTAIN BUY 2.04 DOWN 2.540