28 October 2014

Wing Tai 1Q15 Report Summary - October 2014

Wing Tai reported revenue of S$160M with net profit attributable to shareholders of S$24M (about 15% net profit margin) for its 1st quarter ended 30 September 2014. The net profit is on par compared to corresponding quarter last year although total revenue dropped 28% against last year, thanks to the increase of shares of associated and joint venture companies.

Balance sheet wise, the group recorded total assets of S$4.9 Billion with total equity of S$3.0 Billion. This translates to a healthy total debts to total asset ratio of below 40%. The development properties stood at S$1.5 Billion, with investment properties S$0.6 Billion and Investment in associated companies & JV at S$1.3 Billion. I believe that the group still largely allocate its business in investment (whether in associated / JV or in properties) to help cushion during the slowdown of property market in Hong Kong and Singapore.

Cash flow wise, the group is currently have about S$861 Million worth of cash, which definitely could help the group to stay steadily ahead of the slow down of property market this few years.

As the group recorded 3.06 cents EPS (fully diluted basis), the annualized EPS could be around 12.24 cents which translated to expected annualized PE of around 14x. Nonetheless, this may not be the good measurement to forecast the PE due to the reporting standard that requires the developers to only record the revenue and profits after it obtains the TOP (for certain type - commercial / EC / industrial). A better measurement to check whether the company is undervalued is to check on the P/BV ratio which is 0.45X. I believe that the RNAV would be higher than current S$3.85, so P/RNAV would be definitely around or below 0.40X.

Such a low P/B ratio would tell you that the market does not favor Wing Tai due to the fact that both Hong Kong and Singapore are experiencing a slow down in property market, especially luxury projects in Singapore that experienced more significant decrease in ASP.

Company comments on current outlook:

The URA’s flash estimate shows that the residential property price index declined by 0.6% in the third quarter of 2014, compared to the 1.0% decline in the previous quarter. This is the fourth continuous quarter of price decrease. 

The total number of new residential units sold islandwide in the third quarter of 2014 fell to approximately 1,600 units, as compared to 2,665 new units sold in the second quarter of 2014. The Group expects the operating environment in the Singapore property market to remain difficult in the current financial year. 

So it maybe wise only if you have longer investment horizon, and I believe that the overall property market may recover later (perhaps 1-2 years later, or after the GE ) once government started to loosen up the policy to encourage more people to invest in property market.

P/S: I would think that the long term ROE of Wing Tai could be 10% or above, and the estimated long term PE of Wing Tai would be around 5x. It's good to accumulate the stock if only you have long term investment horizon, and hopefully the dividend it pays to you could help you to stay investing in the journey.

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