Here’s why Wing Tai can start hoping for a stronger balance sheet now

Improvements could come after it sold its 50% stake in Nouvel 18.

After posting a 98% dip in its net profit, property developer and lifestyle company Wing Tai Holdings Ltd. would still have to face tough times as buying sentiments is expected to remain subdued in the city-state.

According to OCBC Investment Research, Wing Tai will be treading on restrained market conditions, as buying sentiments especially in the high end segment is seen to remain suppressed.

OCBC believes that "price discounts will not have much of an impact on the market condition."

To recall, Wing Tai has posted an overwhelming net profit dip of 98% to $1.88 million in Q4. This is a huge downturn from the group's net profit of $116 million in the previous quarter.

The group claimed that the slump is due to lower value gains on their investment properties.
CIMB on the other hand added that Wing Tai sold $208 million worth of residential units in FY16. However, residential development margins plummeted to 7% from the previous year, ultimately hurting its profits.

Meanwhile, OCBC noted that Wing Tai's divestment of its Nouvel 18 stake to City Developments Ltd. in July 2016 is a good move for the group and would improve Wing Tai’s balance sheet.

"We think the transaction makes sense for Wing Tai, given challenging market conditions and that Wing Tai will now likely book a profit for a development that would have been up for QC penalties later this year. We also expect this divestment to improve Wing Tai’s balance sheet strength considerably,” OCBC said.

Echoing the same sentiment, CIMB said, “The recent sale of its 50% stake in Nouvel 18 is expected to further lighten the group’s current gearing of 0.21x and enable it to explore more land acquisitions or reinvestment opportunities.”