DBS Group Research analysts Derek Tan and Rachel Tan have initiated “buy” on Wing Tai Holdings with a target price of $2.05.
According to the analysts’ estimates, Wing Tai is currently trading at a P/NAV ratio of 0.44x, which is at -1 standard deviation of its pre-Covid-19 P/NAV ratios. The estimated target price is also based on a 50% discount to the analysts’ RNAV of $4.09, translating into an implied P/NAV ratio of 0.51x.
Wing Tai is a property group with development and investment properties in Singapore, Malaysia, Hong Kong, China, Japan and Australia.
The group’s retail arm includes retail brands such as Mango, Uniqlo, Adidas and G2000.
In their report dated June 27, the analysts are positive on the SGX-listed group after it substantially sold off its landbank in Singapore with a 95% sell-through rate.
To the analysts, the high sell-through rate is good news, as it could shield the group from the moderating property market following the property measures imposed by the Singapore government.
“We anticipate a multi-year moderation in property prices and sales volumes in 2022/2023, given the recent property cooling measures, which could subsequently lead to a moderation of the FTSE ST All-Share Real Estate Investment and Services (FSTREH) Index and Wing Tai’s share price,” the analysts write.
“[Following the high sell-through rate], Wing Tai should see less exposure from a property market that is expected to slow, in lieu of feeling the impact of the recent property cooling measures and upcoming interest rate hikes,” they add.
To this end, Wing Tai remains on the hunt to replenish its landbank and is expected to be selective in the upcoming government land sales (GLS) and en bloc tenders following its recent successful tender for the collective sale of Lakeside Apartments.
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“We anticipate Wing Tai to continue to build its development pipeline, catalysing an upside to its RNAV,” the analysts say.
However, rising interest rates are a potential concern, in the analysts’ view.
“We observe that the group has a negative correlation of -0.35 vis-à-vis the Monetary Authority Singapore’s (MAS) 10-year bond yield, which suggests that rising interest rate environments may not bode well for Wing Tai’s share price,” the analysts write.
“We also observed that during the first leg of interest rate hikes between 2016-2018, the group’s share price underperformed its peers, suggesting potential downside risks to its share price with the upcoming rate hikes in 2022,” they add.
Wing Tai’s premium retail franchise to bring recurring income
Under Wing Tai’s retail arm, Uniqlo, which is one of its brands, is one of the key market leaders within Southeast Asia’s apparel industry, according to Euromonitor.
Profit generated by Uniqlo’s joint ventures (JVs) grew at a six-year CAGR of 11% between FY2015 to FY2021, the analysts note.
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In their report, they project the brand’s associates and income from their JVs to grow at a steady CAGR of 9% by FY2025. This, they say, could “support the group’s near-term earnings as Wing Tai builds its property development business”.
Catalysts
Further to their report, potential catalysts to Wing Tai’s share price, include successful GLS and en bloc tenders, which could catalyse a further upside to RNAVs.
In addition, potential mergers and acquisitions (M&As) could act as a positive catalyst, with around $0.7 billion in acquisition firepower based on a gearing ratio of 30%.
Finally, the privatisation of the group could be a catalyst for the longer term, with “similar observations made vis-à-vis the partial offer in 2012”, the analysts write.
As at 12.03pm, shares in Wing Tai are trading 2 cents higher or 1.14% up at $1.78.
