Excerpts from analysts' report

JoyWang_Deutsche3.15Deutsche analysts: Chien-Fie Man & Joy Wang (pictured)

We recently met with the management of Wing Tai. Highlights as follows:

While sales in the luxury market remains lackluster, management has resisted price cuts. Notably, both projects have achieved TOP, and any sales will contribute directly to earnings. While a relaxation of policy measures is unlikely until late this year, this represents the largest upside risk to our earnings forecasts. As a sensitivity, our forecasts are based on a S$2250 ASP, but for every 10% rise in Le Nouvel Ardmore sale prices, this would increase Wing Tai’s FY16 earnings by c.13% and NAV by 1%

On the topic of recent impairment charges taken by other developers, management does not believe that they will undertake impairment charges on their high end projects, given that market prices remain above breakeven costs. The company did note that they have started discounting units at The Crest. With ASP’s now approximately S$1600psf, we believe that the project may be at risk for impairment charges, as our estimated breakeven on the project is c.S$1480psf.

The retail segment remains challenging, given the rising manpower and rental costs, as well as competition from e-commerce. While the company has been able to mitigate the impact of e-commerce with agreements from brand owners, segments such as children’s wear remain under pressure. Given the challenging operating environment, management noted that it has explored rationalizing the number of outlets in Singapore.

WingTai3.15Management reiterated its commitment to maintaining a strong dividend policy, and has historically paid dividends even during loss making years.

The company has typically paid 1/3 of operating earnings to shareholders, and paid out a 6ct/sh dividend in FY14. While we forecast earnings to decline as development earnings taper, management did not rule out using reserves to maintain a firm dividend level. 

We maintain our Buy recommendation for Wing Tai, with valuations attractive at 0.46x P/B and 42% discount to our RNAV of S$3.05/sh. We believe that with price declines promoting negotiations, the establishment of a market clearing price and a rebound in volumes should benefit Wing Tai.

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#1 newsman 2015-04-01 16:04
Good discount

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