DBS Group Research analysts Derek Tan and Rachel Tan have maintained their “buy” recommendation for Wing Tai Holdings with an unchanged target price (TP) of $2.05.
In their report dated Aug 29, the analysts note that Wing Tai’s FY2022 net profit “surged” by 222%, driven by higher contributions from associated and joint venture (JV) income from Wing Tai Properties Limited and Uniqlo JVs, while FY2022 revenue was up 12% year-on-year (y-o-y), broadly in-line with their estimates.
Their TP of $2.05 implies a price to net asset value (P/NAV) ratio of 0.48x, which is 1 standard deviations (s.d.) above Wing Tai’s four-year historical P/NAV ratios, while their valuation is based on a sum-of-the-parts revalued net asset value (RNAV) with a 50% holdings discount.
Wing Tai’s NAV per share has risen to $4.32 compared to $4.14 in FY2021, and is currently trading at an “attractive” P/NAV ratio of 0.39x, almost 2 s.d. below its four-year P/NAV ratios.
Wing Tai posted a FY2022 net profit of $140.2 million, up from $36.3 million in FY2021, above DBS’s FY2022 estimates of $45.2 million. The analysts also note that the FY2022 effective tax rate declined to 15%, from 76% and 85% in FY2020 and FY2021 respectively, due to the absence of one-off tax provision in previous years.
In lieu of the strong net profit performance, they note the “positive surprise” of a final dividend of 3 cents and special dividend of 3 cents is proposed for FY22, translating to a dividend yield of 3.7%, above their initial FY2022 dividends per share (DPS) estimate of 3 cents. “Going forward, we assume a steady dividend pay-out of 3 cents, aligned with historical final dividends declared, which translates into a dividend pay-out of 37% and 50% for FY2023 and FY2024,” the analysts add.
Tan and Tan are also assuming an effective tax rate of 15% and expecting associated and JV income to normalise to $41 million and $48 million in FY2023 and FY2024. “In our view, we like Wing Tai’s recurring income which we believe could support the group’s overall earnings as it navigates the property market and builds its development pipeline,” they say.
The DBS analysts point out that Wing Tai has substantially sold off its landbank in Singapore with a 95% sell-through rate, which they believe could shield the group against the moderation of Singapore’s property sales volume in 2022 and 2023 after the implementation of property measures by the government.
“Wing Tai remains on the hunt to replenish its landbank and will be selective in the upcoming government land sales (GLS) and en bloc tenders, following its recent successful tender for the collective sale of Lakeside Apartments. We anticipate Wing Tai to continue to build its development pipeline, catalysing an upside to its RNAV,” they add.
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Meanwhile, Wing Tai’s “premium retail franchise” Uniqlo, a leading player within Southeast Asia’s apparel industry, is expected to be a recurring source of income, providing returns on equities (ROEs) of 20%-30%. “We estimate associate & JV income to grow at a compound annual growth rate (CAGR) of 8% by FY2025, bringing recurring earnings as Wing Tai ramps up its property business,” write the analysts.
Their catalysts include the success of GLS and en bloc tenders could, providing further upside to RNAVs, potential mergers and acquisitions (M&As), with over $800,000 in acquisition
firepower based on a gearing ratio of 30%, and the group’s privatisation prove to be a longer-term catalyst.
As at 10.51am, shares in Wing Tai Holdings were trading flat at $1.66.
