Wing Tai Holdings

Kim Eng on 22 Aug 2012

Core earnings in line. Wing Tai posted a 37% YoY decline in its full-year core PATMI to SGD151.9m, which was largely within expectations due to profit recognition. Total dividend surprised slightly on the upside, comprising 3 cts/sh of ordinary dividend and 4 cts/sh of special dividend, for a yield of ~5%. The Group is actively seeking ways to unlock shareholders’ value, and we upgrade Wing Tai to a BUY. Target price has been raised to SGD1.75.

Cautious stance on residential market remains. Property development contributed 53% of Group EBIT, comprising a mix of income from completed properties such as units at Helios Residences, and properties under development at Foresque Residences and L’VIV. Management maintained that downside risks remain particularly in the mass market segment, which explains the Group’s lack of participation in the Government Land Sales programme.

Looking within for redevelopment potential. Management announced plans to redevelop its industrial properties at 105 and 107 Tampines Road into a 337-unit freehold condo with GFA of 297,232 sq ft. We estimate its breakeven cost to be ~SGD870 psf, and assuming an ASP of SGD1,350 psf, the development could return a healthy pre-tax margin of 36%. We estimate an RNAV accretion of 12 cts/sh.

Unlocking value from HK. Wing Tai Properties (369 HK) is undergoing a restructuring to streamline its asset holdings currently held under its own subsidiary Winsor Properties (1036 HK). As a result, 369 HK’s share price has surged by 42% since the corporate restructuring was announced in mid-May.

Looking attractive again. Even as the market remains challenging, we like Wing Tai’s proactiveness in trying to unlock shareholders’ value. We reckon that the Group can maintain total dividends of 7 cts/sh for the next few years, implying an attractive yield of 4.9%. Our target price has been raised to SGD1.75, mainly as we incorporate the Tampines Road site and the higher market cap of 369 HK. Upgrade to BUY.