Wing Tai Holdings

Maybank Kim Eng Research, Oct 28

WE reiterate our "buy" recommendation on Wing Tai, with a slightly higher target price of S$2.80, pegged to a 30 per cent discount to RNAV.

While Q1 FYJun14 core earnings dipped both q-o-q and y-o-y, we see that as a non-event, with the fairly successful launch of The Tembusu yet to contribute to earnings. Shareholders are still eligible for the 12 cents/share dividend (three cents ordinary, nine cents special) before the stock goes ex-dividend on Nov 5.

Wing Tai's Q1 FYJun14 core profit after tax and minority interests (Patmi) came in at S$24.5 million (-37 per cent q-o-q; -66 per cent y-o-y), mainly due to lower profit recognition, as well as lower associate earnings, mainly from Wing Tai Properties Hong Kong.

Nonetheless, this was largely within expectations. Projects that contributed were mainly Foresque Residences, L'VIV, the additional units sold at Helios Residences, as well as the Jesselton Hills landed property project in Penang, where Phase 1 of over 100 homes were completed in the quarter.

Since the launch of the 337-unit The Tembusu in August, sales have been registered for 217 units as of end-September, according to the Urban Redevelopment Authority's (URA) statistics, for a healthy 64 per cent take-up rate.

We estimate that another 10-15 units may have been sold since then, with average selling price (ASP) remaining at around S$1,500-S$1,600 per square foot. Due to the early stages of construction, we expect The Tembusu to begin earnings contribution only in late FYJun14.

Wing Tai's Prince Charles Crescent (PCC) site is expected to be launched in Q4 2013 or Q1 2014. At an estimated breakeven cost of S$1,450 psf, we estimate a ASP of S$1,750 psf.

Meanwhile, SingLand is likely to launch its own 495-unit project nearby called Alex Residences in the coming weeks, with a slightly lower estimated breakeven of S$1,400 psf. The pricing and demand for Alex Residences will provide further benchmarks for Wing Tai to price the PCC project.

Wing Tai's balance sheet remains rock solid with a net gearing of just 0.13 times. We firmly believe that its 0.6 times P/B valuation is unjustified and reiterate our "buy" recommendation with a target price of S$2.80, which implies a 0.77 times P/B and still slightly below its mid-cycle P/B valuation of 0.84 times.

BUY