Simons Trading Research

Author: simonsg   |   Latest post: Wed, 17 Aug 2022, 10:12 AM


Wing Tai Holdings - Spreading Wings on Upcoming Tenders

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  • Wing Tai's diversified real estate portfolio across Asia Pacific is valued at ~S$2.7bn, with a premium retail franchise.
  • High % of inventory sold, shielding Wing Tai from a moderating property market as it builds its landbank, whilst Uniqlo JVs bring steady recurring income.
  • Attractive valuation at -1 standard deviation of pre-COVID P/NAV ratios.
  • Initiate coverage on Wing Tai with BUY recommendation.

Wing Tai - Company Background

  • Presently, Wing Tai Holdings Limited (SGX:W05) is an investment holding company that engages in property development, investment and management, as well as hospitality and apparel retailing, with a regional business presence across Singapore, Malaysia, Hong Kong, China, Australia, and Japan.
  • As at June 2021, Wing Tai has total assets of S$4.5bn, split into
    • development properties (50%),
    • investment properties (46%), and
    • retail (4%).
  • Wing Tai’s asset allocation is contributed predominantly by Singapore (49%), Hong Kong (35%), Malaysia (10%), Australia (4%), and China (2%).
  • Wing Tai's property division includes property development, investment, and hospitality management across Singapore, Malaysia, Hong Kong, China, Australia, and Japan.
  • Wing Tai's retail division is predominantly in markets such as Singapore and Malaysia.
  • Wing Tai’s property development business contributed 77% of FY21A’s revenue, while retail was at 11%, investment properties at 9%, and lastly, investment and others at 2%. In terms of its geographic segments, Singapore contributed 85% of its FY21A revenue.

Wing Tai - Investment Summary

Diversified real estate portfolio in Asia Pacific, with premium retail brand offerings.

  • Wing Tai (or the “group”) has development and investment properties in Singapore, Malaysia, Hong Kong, China, Japan, and Australia. Wing Tai’s retail arm houses well-known retail brands such as G2000, Adidas, Mango, Uniqlo, and more.

Recent property cooling measures as potential headwinds.

  • We observe a positive correlation between Wing Tai's share price with
    1. the number of private property sale units in Singapore and
    2. the broader FTSE ST All-Share Real Estate Investment and Services (FSTREH) Index.
  • We anticipate a multi-year moderation in property prices and sales volumes in CY22/23, given the recent property cooling measures, which could subsequently lead to a moderation of the FSTREH Index and Wing Tai's share price.

Rising interest rates a potential concern.

  • We observe that Wing Tai has a negative correlation of -0.35 vis-à-vis the MAS 10-year bond yield, which suggests that rising interest rate environments may not bode well for Wing Tai's share price.
  • We also observed that during the first leg of interest rate hikes between 2016-2018, Wing Tai's share price underperformed its peers, suggesting potential downside risks to its share price with the upcoming rate hikes in 2022.

However, strong presales could shield the group from the moderating property market.

  • On a positive note, ~95% of Wing Tai’s development properties in Singapore have already been sold, versus some peers that have a higher % of unsold property. As such, Wing Tai should see less exposure from a property market that is expected to slow, in lieu of feeling the impact of the recent property cooling measures and upcoming interest rate hikes.

Growing property development pipeline.

  • Wing Tai announced that the group is a successful tenderer for the collective sale of Lakeside Apartments at 9E & 9F Yuan Ching Road for ~S$273.9m, spanning a land area of ~134,177sqft with a plot ratio of 2.1.
  • Wing Tai has guided that the group will continue to build its development property pipeline. Additional successful land-banking activities and tenders could act as a positive catalyst for Wing Tai’s RNAV.

Premium retail franchise to bring recurring income.

  • Uniqlo is one of the key market leaders within Southeast Asia’s apparel industry, according to Euromonitor. Between FY15A to FY21A, profit generated by Uniqlo JVs grew at a six-year CAGR of 11%, driven by improving margins.
  • We project associates & JV income to grow at a steady CAGR of 9% by FY25F, which could support the group’s near-term earnings as Wing Tai builds its property development business.

 Value-accretive acquisitions.

  •  A gearing ratio of 0.30x is estimated to result in an additional S$0.7bn in acquisition firepower. Wing Tai's management has guided that the group is looking for accretive investment opportunities, mostly within the property investment and development space, which could act as a positive catalyst.

Privatisation or takeover story a longer term catalyst.

  • The Cheng family currently holds a ~50% stake in Wing Tai. During the family’s partial offer in 2012, Wing Tai
    •  had notably underperformed the FSTREH and STI indexes based on its one-year relative performance and was also
    •  trading below its one-year average PNAV ratio.
  • We believe the privatisation and/or takeover story could be near, given similar observations.

Initiate Coverage on Wing Tai With BUY

  • Attractive valuation: Wing Tai's share price is currently trading at a PNAV ratio of 0.44x, which is near -1 standard deviation of its pre-COVID PNAV ratios.
  • Initiate coverage on Wing Tai with BUY, with target price of S$2.05.
  • Our estimated target price for Wing Tai is based on a 50% discount to our RNAV of S$4.09. Our target price for Wing Tai translates into an implied P/NAV ratio of 0.51x, which is aligned with +1 standard deviation of Wing Tai’s pre-COVID PNAV ratios.

Source: DBS Research - 27 Jun 2022

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