Wing Tai Holdings Ltd - Discounting much residential risks (CIMB)

OUTPERFORM Maintained

S$1.26 Target: S$1.51

Mkt.Cap: S$996m/US$827m

Property Devt & Invt

• Above; maintain Outperform on valuations. 4Q11 core earnings of S$98m form 54% of our forecast and 53% of consensus, on stronger recognition at associates. FY11 core earnings of S$241m form 134% of our number. Its share price has been bashed to levels discounting a 40-45% fall in residential prices, by our estimates. We cut our target price from S$1.93 to S$1.51 on: 1) higher cap rates; 2) lower ASPs; and 3) a wider valuation discount of 35% vs. 25% previously. Wingtai has proposed first and final dividends of 7cts, implying an attractive 5.5% yield. Volumes could remain sluggish, especially at the high end, but we believe much has been discounted. Its prime landbank costs are low, while net gearing continues to trend down (0.35x). Over 45% of its SOP value also comes from investment properties, a resurgent retail business and listed vehicles which are at depressed valuations; these are expected to provide catalysts.

• Profit recognition strong, but new home sales sluggish. FY11 revenue fell 21% yoy to S$649m as many projects approached completion. The 72% yoy rise in core earnings (S$241m) was spurred by stronger contributions from Wingtai HK and its Floridian project in Singapore at the associate level. While Wingtai has sold over 45% of Foresque Resi to date, sales of luxury units remain sluggish. Management is unperturbed, believing there is still room for growth at the high end on limited supplies and lower prices vs. the previous peak. Management believes the upgraders’ segment may be reaching a peak.

• Strong financials. We believe Wingtai is in a strong financial position to weather the storm, a likely reason why management remains relaxed. Helios and Belle Vue are 50-75% sold, while its two sites in the Ardmore area were acquired substantially below the peak levels in 2008. We believe Wingtai will be sheltered from any need for landbank provisioning. Net gearing has also consistently fallen, to 0.35x from 0.44x last year.

• Non-Singapore residential segment. The resurgence of Wingtai’s retail operations remains on track, with FY11 EBIT up 25% yoy to S$19.9m. Occupancy for its commercial and serviced apartments remains healthy at 94% and 81% respectively. Outside Singapore, its listed entities in DNP and Wingtai Properties in Hong Kong continue to trade at a depressed 0.4x P/BV. We estimate that Wingtai’s non-Singapore residential segments form around 45% of its SOP value.