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Broker's take: UOB Kay Hian re-initiates coverage on Wing Tai with 'buy'

VIEWING Wing Tai Holdings as a "late-cycle economy play", UOB Kay Hian has re-initiated coverage on the mainboard-listed company with a "buy" recommendation and target price of S$2.54.

As at 3.05pm, shares in the property developer which also has a lifestyle retail business were trading S$0.01 or 0.5 per cent up at S$1.98 - a 22 per cent discount to UOB's price target.

In a Thursday report, UOB Kay Hian analysts Loke Peihao and Nicola Ho wrote: "Wing Tai stands out as a high-quality, low-risk name with a strong balance sheet (0.2 times net gearing) and resilient earnings."

On Wednesday, the company reported a 61 per cent increase in Q2 net profit to S$26 million, even as revenue slipped by 10.2 per cent to S$104.2 million. The bottom line was lifted by property sales.

Wing Tai is also riding the tailwind from strong performances of its joint ventures in Uniqlo Singapore and Uniqlo Malaysia, where it has a 49 per cent and 45 per cent stake, respectively.

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Ms Loke and Ms Ho noted that Wing Tai enjoys a "high" return on equity in Singapore (36 per cent) and Malaysia (41 per cent), while enjoying improving margins from operations in both markets. 

Moreover, Uniqlo has grown its market share in both countries. According to Euromonitor data, Uniqlo's market share among apparel and footwear specialist retailers in Singapore grew from 6.3 per cent to 9.8 per cent from 2015 to 2018. For the same period, its market share in Malaysia improved from 1.1 per cent to 1.7 per cent.

Ms Loke and Ms Ho are also of the view that Wing Tai's Singapore residential property business may improve due to pent-up investment demand and the return of foreigners purchasing properties in the country.

"Management sees opportunities in high-end investment demand from locals, which its Middle Road project (The M) has been geared towards based on its location and planned unit sizes," the analysts noted.

Although the introduction of additional buyer's stamp duty for private residential properties in Singapore in July 2018 has suppressed transaction volumes for investment properties, there are signs of recovery, they added.

UOB Kay Hian's report is prepared under the Research Talent Development Grant Scheme where the Monetary Authority of Singapore provides co-funding to groom research talent to initiate research coverage primarily of mid to small cap Singapore-listed companies.

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