Wing Tai - Earnings dragged down by non-cash impairment charges

Wing Tai (WT) announced a 3Q09 net profit of $21.4m – a 23%-decline yoy, 2% improvement qoq. The results are below our expectations, with YTD net income of $78.9m forming 56% of our full-year estimate.Its 3rd quarter revenue fell by 10% yoy to $89.6m, but remained relatively flat sequentially. Revenue was mainly recognized from sold units at Helios Residences and The Riverine by the Park.

Its 3Q09 net profits were dragged down by a $2.4m-loss from associated and JV companies, due largely to USI Holdings’ impairment charges of HK$235.4m for its strategic investments, mainly for listed equity securities. We estimate WT’s share of the losses to be about S$15.6m. Stripping out one-off items, core earnings actually grew by 685% qoq.

Ascentia Sky at Alexandra Road is expected to be launch-ready by June. WT may have to make a total writedown of $43.4m due to Ascentia Sky and Anderson 18. We think that making the writedowns this financial year would allow WT to launch a portion of their projects at current market prices to generate cashflow, and possibly still book in profits in subsequent periods as demand strengthens.

Despite the recent rally in its shareprice, we estimate that WT’s prime landbank has a price-implied Gross Development Value of just $1,160 psf. This is despite the fact that about 56% of its attributable GFA is for high-end developments, comprising prime sites like Le Nouvel Ardmore, Anderson 18 and Belle Vue Residences.

We have lowered our FY09-10 forecasts by 19% and 11% respectively, mainly due to adjustments in profit recognition and lower contributions from USI Holdings. We still like WT for its undervalued landbank and low net gearing of 0.5x. With the re-rating of property stocks, its current 41%-discount to NAV should narrow. Maintain BUY with a target price of $1.47, pegged at a 25%-discount to its RNAV.

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