■ 1QFY16 net income of SGD2.0m was below expectations at only 2% of FY16E.
■ Lacklustre performance could persist in the near term.
■ Continue to see deep value in the stock. Maintain BUY and TP of SGD2.25, based on 35% RNAV discount.
Lacklustre earnings reflect near-term challenges
1QFY16 net income of SGD2.0m was below expectations at only 2% of FY16E. The quarter’s SGD170m revenue (+6% YoY) was driven by progressive recognition from The Tembusu, Le Nouvel Ardmore in Singapore, The Lakeview in China and Jesselton Hills in Penang. Share of profits from associates and joint ventures fell to SGD7.4m (-45% YoY) due to lower contributions from Wing Tai Properties and its development projects in Singapore. We note that none of the units at Nouvel 18 had been sold and only 11 units at The Crest were sold in the quarter.
Continue to see deep value in stock
The lacklustre set of results reflects the challenging market conditions and near-term headwinds could persist. The Crest, its 40% JV project at Prince Charles Crescent, could be forced to lower asking prices given competition from the impending launch of Principal Garden, a nearby UOL project. That said, we had already built price reductions into our forecasts. We maintain our forecasts on expectations of higher recognition of project revenue in the next few quarters.
We reiterate our view that Wing Tai is well-positioned to ride out the residential down-cycle. Increasing its leverage to 0.5x (from 0.1x) will give it debt headroom of SGD1.4b, which will allow it to replenish land bank as prices correct. We continue to see deep value in the stock at 48% discount to our RNAV estimate of SGD3.44 and 0.43x P/BV. A possible roll-back of property cooling measures in the year ahead could revive interest in the stock. Maintain BUY and SGD2.25 TP, based on 35% RNAV discount. (Read Report)
Source : Maybank Kim Eng Research