• FY16 results broadly in line
• Expect conditions to remain difficult
• Nouvel 18 divestment to boost balance sheet

Challenging year for the group

Wing Tai reported a FY16 (ending June 2016) PATMI of S$7.1m, which was 95% lower YoY mainly due to weaker contributions from its property development business, lower fair value gains on investment properties and the absence of a one-time divestment gain in FY15.

In terms of the topline, FY16 revenues also decreased 20% YoY to S$544.5m and were mostly derived from progressive sales from The Tembusu, additional units sold in Le Nouvel Ardmore in Singapore, The Lakeview in China and also Phase 2 of Jesselton Hills in Penang.

We had expected significantly weaker profits from the group due to challenging market conditions and judge FY16 results to be broadly within expectations. The group has proposed a total dividend of 6.0 Scents (3 S-cents first and final dividend and 3 Scents special dividend), up from 3.0 S-cents in the previous year.

Expect subdued buying sentiments in Singapore

Wing Tai expects market conditions to remain subdued in 2H16. The group has sold 7 units in Le Nouvel Ardmore at an ASP of ~S$4k; given existing property measures, management expects buying sentiments in the high end segment to be stay suppressed and does not believe price discounts will have much impact.

In its overseas markets, depending on market conditions, the group plans to launch Le Nouvel KLCC, a high-end 195-unit freehold residential development in Jalan Ampang in KL, Malaysia and Malaren Gardens, a residential development with 301 units in Shanghai, China.

Nouvel 18 sale to boost balance sheet strength considerably

In July 2016, Wing Tai divested its 50% stake in Nouvel 18 to City Developments Ltd for S$411.0m. We think the transaction makes sense for Wing Tai, given challenging market conditions and that Wing Tai will now likely book a profit for a development that would have been up for QC penalties later this year.

We also expect this divestment to improve Wing Tai’s balance sheet strength considerably. Given softer residential assumptions in our model, our fair value estimate dips to S$2.37 (versus S$2.43 previously). Maintain BUY.  

Source: OCBC Research - 24 Aug 2016