Wing Tai’s 2QFY16 PATMI fell 85% YoY to S$1.1m mostly due to lower contributions from the property development segment, higher administrative expenses as the group closed retail outlets in Singapore and a higher tax rate; these were partially offset by stronger share of profits from associates/JVs and lower distribution expenses. The topline for the quarter similarly dipped 5% YoY to S$120.6m and over 1HFY16, the group had recognized progressive sales from the Tembusu, Le Nouvel Ardmore, The Lakeview in China and Phase 2 of Jesselton Hills in Penang, Malaysia.

Overall, we judge that 2QFY16 earnings have come in below expectations as the operating environment for the group proved tougher than anticipated. That said, our investment thesis for Wing Tai remains largely unchanged; given an undemanding price-to-book ratio of 0.37x, a low gearing of 16% with S$594.4m cash and its portfolio of prime residential and investment assets, we see significant value here and believe the group remains well-positioned to ride out the current down-cycle. Maintain BUY with our fair value estimate of S$2.58 under review.

Source: OCBC Research - 11 Feb 2016