Wing Tai Malaysia Bhd
(Nov 19, RM2.03)
Maintain “hold” with a lower target price (TP) of RM2: Excluding a RM20 million gain on disposal of 25% interest in PT Windas Development, Wing Tai’s core profit came in at RM11.1 million (-51% quarter-on-quarter [q-o-q], -29% year-on-year [y-o-y]). This is only 14% of our financial year 2015 (FY15) forecast, due to delays in new launches as well as margin compression at the retail business.

Similarly, core earnings before interest and tax (ebit) fell 52% q-o-q and 46% y-o-y to RM10.8 million, reflecting poor performance for both of Wing Tai’s core business segments. Therefore, first quarter of FY15 (1QFY15) core ebit margin fell to 13%, from 15.5% in 4QFY14 and 24.2% in 1QFY14.

It remains unclear when the Le Nouvel project @ KLCC (RM1 billion gross development value [GDV]) will be launched, although construction will be completed next year. We suspect the delay might be due to concerns over potentially poor response given the high unit price of more than RM4 million (1,800 sf to 2,800 sf built-up).

Wing Tai’s retail sales may be dampened by more cautious discretionary spending in view of the implementation of goods and services tax by April 15, 2015. Also, margins have been affected by rising inflationary pressures, notwithstanding the softer market demand.

We imputed delays for future launches as well as lower operating margins for its retail business.

We have a “hold” call on Wing Tai with a revised TP of RM2, based on 50% discount to revised net asset value of RM3.91.

Risk is weak demand for high-end condos in KLCC. This is premised on large incoming supply (exacerbated by recent restrictions on foreigners). Sales of Le Nouvel may be dragged by high absolute price for the large built-up. Revenue growth is expected to decelerate to high single-digit from double-digit previously. — AllianceDBS Research, Nov 19

This article first appeared in The Edge Financial Daily, on November 20, 2014.