Lim & Tan Securities is keeping a positive outlook on property developer and retail operator Wing Tai Holdings W05 , as analyst Chan En Jie has kept his ‘accumulate’ call on the counter with a target price of $1.95.
Wing Tai’s 1HFY2023 ended Dec 31, 2022, revenue and operating profit came in at $260.8 million (-14.9% y-o-y) and $29.1 million (-43.0% y-o-y) respectively from lower progressive sales as less than 95% of its development units in Singapore have been sold.
“Going forward, redevelopment of Lakeside Apartments en-bloc is targeted to commence in FY2024, while the successful tender for the freehold Holland Tower site in March will add to its landbank,” says Chan, adding that he believes that the demand for this launch will remain resilient, given the limited supply of new residential developments in the Lakeside region with the most recent launch way back in 2016.
On its retail segment, the group continues to see steady profitability from its Uniqlo joint ventures (JV) in Singapore and Malaysia.
Taking reference to Uniqlo parent company Fast Retailing’s 30 times P/E valuation on the Tokyo Stock Exchange, Wing Tai’s share of Uniqlo JV profits of $44.8 million in FY2022 would have valued Wing Tai at $1.3 billion, above its current market cap (without even including its development and investment properties segment). Wing Tai’s overall market cap stands at $1.20 billion as at Apr 4.
“Backed by the reopening of borders and return of tourism, the recurring Uniqlo income serves to smoothen Wing Tai’s lumpy property development earnings (especially in Hong Kong),” says Chan.
The group’s property interest in Hong Kong is represented by its 34.1% stake in associated company, Wing Tai Properties. Wing Tai Properties has seen the fair value of its investments and development units marked down by HK$1.2 billion ($200 million), due to a weakened economy and property market in 2022, along with rising interest rates and an uncertain economic outlook.
As a result, Wing Tai Properties saw a consolidated loss of HK$540 million in FY2022 ended Dec 31, 2022, compared to a gain of HK$854 million in FY2021.
“Wing Tai’s FY2023 results may be impacted by the losses from its 34.1% stake in the Hong Kong-listed Wing Tai Properties. However, we note that these losses are non-cash in nature and Wing Tai Properties is able to deliver a relatively stable core business profit, enabling them to deliver an unchanged full year dividend payment of 27.0 HK cents per share,” says Chan, who has decreased the group’s Fy2023 net profit by 27% for factor in potential downward pressure from Wing Tai Properties.
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Supported by a low net gearing of 8.1% and dividend yield of 4.1%, Wing Tai trades at an undemanding 0.34 times P/B compared to its four-year historical mean P/B of 0.44 times.
“The group’s cash buffer of $412.8 million provides firepower for landbank replenishment and a gearing ratio of 30% can provide Wing Tai an additional $500 million cash for potential acquisitions and opportunistic purchases,” says Chan.
As at 4.15pm, shares in Wing Tai are trading at $1.51.
