Wing Tai Holdings’ $649.1m revenue in FY11 within expectations

FY11 results boosted by revaluation gains; weak development revenue a concern. Wing Tai’s FY11 revenue at S$649.1m (-21% YoY) was within expectations, mainly contributed by lower development revenue mainly from Helios Residences and additional units in Belle Vue sold (FY11 development revenue of S$401.1m (-32% YoY), partly mitigated by higher retail revenue of $202.4m (+13% YoY).

At the net profit level, bottomline of S$314.2m (+95% YoY) was heavily boosted by revaluation gains from both Winsland House I/II (c.S$74m before tax) as well as from HK investment properties at the associate level.

Excluding revaluation gains, underlying profit grew to S$182.2m (+30% YoY) supported by associates contributions eg. Floridian project. Dividend of 7 cents per share (4 cents special dividend) was announced with this set of FY11 results, translating to 30% dividend payout and 5.6% yield.

Briefing takeaways less sanguine. i) Wing Tai is highly leveraged to high end residential prices with 46% GAV exposure. Despite Wing Tai’s likely firm stance on ASPs, we see potential news flow on weakening high-end residential prices as a negative. ii) With macroeconomic concerns, potential sluggish take up for high end residential projects implies slow asset turn for Wing Tai moving forward. iii) In line with peers, Wing Tai’s cautious stance on land banking points to lack of positive catalysts from RNAV accretive land banking acquisitions.

Resume coverage with BUY. In line with other real estate developers, Wing Tai’s share price has corrected significantly on the back of concerns over macroeconomic concerns and policy impact on physical residential prices.

While we believe physical prices are unlikely to revisit physical weakness during the GFC; If we factor in -25% and -30% in residential ASPs and office capital values respectively to our base case scenario and mark-to-market Wing Tai’s listed entities, we derive post stress test RNAV of S$1.60 on our numbers.

Therefore we think the stock warrants a BUY at current share price level on deep value albeit a lack of near term catalysts. Resume coverage with BUY, TPS$1.98 based on 20% discount to RNAV.