31 October 2013

Wing Tai - Could it be undervalued? - Last Update Dec 2013

Wing Tai is a property and retail player in Singapore, Hong Kong, Malaysia and China.

For latest quarterly report released on 25 October 2013, it reported a decrease of 66% net profit to S$24.5M from S$72M same period last year. Total Net Equity Value stood at S$2.8 Billion. So the ROE is rather very low (below 4%).

However, if we look at long term say 10 years time, the Net Equity Value rose to S$ 2.8 B FY2013 from S$ 946 M FY2004, or CAGR of 13%. Imagine, if you put in a $1.00, your invested capital there would be increased to $3.39.

As now the share price is trading at about 0.6X of Net Equity Value, it could mean that if we put $0.60 today, we may be able to able retrieve $3.39 10 years later. Sounds cool right?

However, it is not just as simple as that. We got to analyze what made the share price trading below Book value, and would it continue the trend forever? And what is our target selling price?

The business model of Wing Tai is to have a combination of property investment & development projects apart from retail business which brings in less significant income stream to the group (although we also saw a rise of Retail contribution of revenue to S$210M from S$36M).

So they can create accounting income by few ways: earn from property development projects, increased value of investment properties, or share of profits from associate & JV projects.

If you look at Shares of Result of Associated Companies & JV Companies before Tax, you will see that it has ballooned to S$294M  from S$15M in FY2004, or CAGR of 39%. The contribution from Associated Companies & JV Companies even contributed more than its core operating business in FY2012 (restated). So, it means that actually Wing Tai group actually depends quite largely on its associated & JV companies.

If you look at Hong Kong associate company (Wing Tai Properties), the net profit derived from disposal gain from non core assets & gain from investment properties revaluation. So it means for a double effect. During Property Boom, the profit would be more and during Economy Recession, the income would be affected by revenue as well as devaluation of investment properties.

So far, the group can generate operating cash flow constantly, with 2 exceptional years (2004 - SARS in Hong Kong and Singapore & 2009 - Global Recession), while the Cash Flow from Investing were always in positive mode except for year 2013 (due to borrowing to  JV companies of S$120M).

So let's look at how its listed associated & JV companies performed over five years. I copied and pasted from annual reports:

Wing Tai Malaysia (60.1% Holdings, Listed in MY)

Wing Tai Properties (33.5% Holdings, Listed in HK)

So, if you ask me when is the best to invest in property counters, I would say to wait for a recession time to come. Now the U.S. economy is recovering while Europe economy still stagnant for a long time, maybe we can diversify to Europe property / finance sectors when the time is right.



Last Updated (December 2013)

Award of Tender

The Directors of Wing Tai Holdings Limited wish to announce that Winmine Investment Pte. Ltd. (a subsidiary of the Company) has been awarded the tender for a leasehold land parcel Plot 17/2, Huai Hai Middle Road Precinct No. 45 in Shanghai Huangpu District having an approximate site area of 8,593.9 square metres at the price of RMB1,104,000,000. Following the award of the tender, Winmine will incorporate a new company in Huangpu District to develop the Land as an office cum retail development. 

I treat it as a positive move for the Co. to further diversify its property development projects from Singapore alone. Currently for property development project, Singapore contributed about >60%. So with this project, I believe the company can better weather the weakening property demand in Singapore market. As this is a retail cum commercial development, the profit margin could be higher compared to residential project. I have to do more research on Shang Hai property market before giving any comment on the impact of the project to Wing Tai.

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