Brokers’ take: Lim & Tan Securities initiates coverage on Wing Tai with ‘accumulate’

LIM & Tan Securities has initiated coverage on Wing Tai with an “accumulate” call and a target price of S$1.95, on the belief that the group’s income streams will shield it from market volatility.

The 12-month target price is based on a sum-of-the-parts valuation. The analysts liked Wing Tai : W05 0% for its recurring income streams from its retail segment and investment properties.

Wing Tai holds stakes of 49 per cent and 45 per cent in Uniqlo Singapore and Uniqlo Malaysia, respectively. The joint ventures contributed S$44.8 million to the company’s earnings for FY2022, representing a 12 per cent increase from their pre-pandemic FY2019 contributions.

Lim & Tan analysts expressed optimism in the joint ventures’ growth in both top and bottom lines as the clothing brand continues to expand in South-east Asia.

They said on Friday (Nov 11): “The strong recurring income (from Uniqlo) will continue to help smoothen the fluctuations in lumpy property earnings.”

While the analysts believed headwinds loom in Singapore’s property market, they remain confident that Wing Tai’s developments here will experience limited impact. More than 95 per cent of its development units were sold ahead of the property cooling measures enacted in December 2021 and September 2022, they noted. 

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The group’s recent en-bloc purchase of a S$273.9 million residential development in Lakeside is also likely to see resilient demand, said Lim & Tan’s analysts. This is due to the limited supply of new residential developments in that region.

Meanwhile, Wing Tai’s investment properties continued to generate steady rental income with positive occupancy rates of 95 per cent and above for its Singapore properties. The group’s investment properties in Australia recorded an occupancy rate of 100 per cent in FY2022.

In addition, Lim & Tan liked Wing Tai for its low net gearing of 2.2 per cent. The research team called it “a rarity among its peers whose gearing range between 50-100 per cent”.

The analysts noted that the group’s strong cash buffer kept it shielded from the hawkish interest rate environment, and that a gearing ratio of 30 per cent is within its comfort level. This would provide Wing Tai more headroom for opportunistic acquisitions, in their view. 

Lim & Tan also indicated that the company might privatise due to recent insider transactions. In July 2021, group chairman Cheng Wai Keung increased his stake to 60.2 per cent from 55 per cent at S$1.83 per share.

Since a share buyback mandate issued in October 2021, Wing Tai has also bought back 12 million shares at a volume-weighted average price of S$1.79 – above the current share price level.

Based on Cheng’s transactions, Lim & Tan estimated Wing Tai’s current price-to-book ratio (PB) to be at an “attractive” 0.34 times, which represents a 23 per cent discount to its four-year historical mean PB of 0.44 times. 

The dividend yield stands at 4.1 per cent.

Shares of Wing Tai were trading up 2.7 per cent or S$0.04 at S$1.51, as at 2.05 pm on Friday.