• Looking at IP next
• Healthy balance sheet
• FV of S$2.41

Broadly In-line Results

Wing Tai’s FY18 revenue rose 42% to S$373.2m, due largely to higher contribution from development properties. In particular, FY18 saw revenue recognized from the additional units sold in Le Nouvel Ardmore and BM Mahkota in Penang. These, together with the gain on disposal of the Huai Hai project in Shanghai, allowed the group to reverse the operating loss of S$11.8m in FY17 to a gain of S$60.3m in FY18.

The group’s share of profits from JV/associates increased by 188% to S$211.6m, brought about mainly from gains recognized by Wing Tai Properties Limited from the disposal of two buildings in Hong Kong, as well as contribution from Malaren Gardens in Shanghai.

All-in, the group’s PATMI grew significantly from S$20.2m in FY17 to S$218.8m in FY18. A full-year dividend of 8 cents per share was declared (FY17: 6 cents per share), representing a payout ratio of ~29%.

Down, But Not Out

Following yesterday’s analyst briefing, we believe that management has been and will continue to be cautious in their Singapore land bids. This can be seen from the recent (pre-cooling measures) tender for a commercial and residential site in Sengkang Central, where Wing Tai (and Keppel Land)’s bid of S$723.05 psf ppr came in 21.7% lower than the winning bid.

Given the increase in the remissible ABSD rate, management has noted the heightened risks involved in local property development. Hence, we believe that the group will now focus its capital towards building up its investment portfolio for recurring income.

Specifically, we think that the group would be looking at commercial properties in Australia and/or Japan in the near term. While the group still faces risks from its unsold residential land bank in Singapore (~60% / 65% / 29% of units left at The Garden Residences, Le Nouvel Ardmore, The Crest, respectively), the group has a strong balance sheet and the likelihood of severe ASP cuts to destock is unlikely.

Still, to err on the side of caution, we make slight downward revisions to our assumed ASPs, and increase our RNAV discount from 10% to 15%. Thus, our fair value estimate drops from S$2.64 to S$2.41. Wing Tai is currently trading at 0.47x forward P/B, which is ~0.46 S.D. below the 10-year mean.

Source: OCBC Research - 29 Aug 2018