Wing Tai Malaysia Bhd is anchored by its two core businesses, namely property development and apparel retailing. Its fundamentals are underpinned by: (i) its ability to tap into its parent company’s extensive networks in Malaysia, Singapore, Hong Kong and China, (ii) its duo core businesses in property development and apparel retailing, and (iii) tremendous growth potential in its apparel retailing, especially Uniqlo. Based on our sum-of-part valuation, we derive a FV of RM2.06, which suggests a potential price upside of 18%.
Duo core businesses. Wing Tai Malaysia Bhd (Wing Tai), formerly known as DNP Holdings Bhd, is a 60.96%-owned subsidiary of Wing Tai Holdings Ltd. It involves in property development and investment holding, retailing of apparel and garment manufacturing. Its revenue is mainly derived from its two core businesses, namely property development and apparel retailing.
High-end property player. Specialising in mid- to high-end segment properties, Wing Tai’s development projects are mainly located in the central and the northern Peninsular Malaysia with a total potential GDV of over RM2.4b. Currently, it has five projects in the pipeline with combined unbilled sales of RM311m as of end-June 2012. One of them is the Verticas Residensi project in Jalan Ceylon, located at the heart of Kuala Lumpur’s Golden Triangle. With a takeup rate of 70% as of June 2012, the project, which is slated to complete by 2Q2013, will be a major contributor to the group’s property development business in FY13.
Huge growth potential in retailing. Wing Tai carries 11 fashion brands in Malaysia such as Topshop, Topman, Dorothy Perkins, Warehouse, Pumpkin Patch, Wallis, Karen Millen, BCBG Maxazria, Diva, Miss Selfridge and Ben Sherman. The company has a total of 69 retail outlets (excluding Uniqlo) as of end-June 2012. Currently, Topshop, Topman and Dorothy Perkins are the top three sales contributors to the group. In the past three years, the number of stores grew from 53 stores in FY10 to 69 stores in FY12, while revenue per store climbed steadily from RM2.33m/store to RM2.43m/store over the same period. The company is expanding its retailing business aggressively, aiming to open 15 outlets in FY13 and to achieve a total of 100 stores by 2015. Besides Klang Valley, Wing Tai is looking at new market opportunities in eastern Peninsular Malaysia and East Malaysia. In addition, it is currently looking to add new fashion labels to increase its brand portfolio.
Uniqlo to boost earnings. Wing Tai has tied up with Fast Retailing Co Ltd (Uniqlo Japan) under a 45:55 joint venture (JV) agreement. Uniqlo Malaysia’s revenue is expanding rapidly with its five outlets located in Farenheit 88 Mall, Suria KLCC Mall, Mid Valley Megamall, 1 Utama Store, and Setia City Mall. It is eyeing two new outlet openings in Sunway Pyramid and Paradigm Mall by November this year.
BUY, RM2.06 FV. Over the years, Wing Tai has successfully transformed itself from a garment manufacturer to an established property developer and an apparel retailing group. We like Wing Tai for: (i) its ability to tap into its parent company’s extensive networks in Malaysia, Singapore, Hong Kong and China, (ii) its reputation as a premier modern property developer in Kuala Lumpur and Penang, and (iii) tremendous growth potential in its apparel retailing, especially Uniqlo. We are recommending a BUY on Wing Tai with a FV of RM2.06 based on sum-of-part valuation, pegged at the property industry’s average PER of 8x and the apparel retailing industry’s average PER of 8.5x on its projected FY13 earnings.
Duo core businesses. Wing Tai Malaysia Bhd (Wing Tai), formerly known as DNP Holdings Bhd, is a 60.96%-owned subsidiary of Wing Tai Holdings Ltd. It involves in property development and investment holding, retailing of apparel and garment manufacturing. Its revenue is mainly derived from its two core businesses, namely property development and apparel retailing.
High-end property player. Specialising in mid- to high-end segment properties, Wing Tai’s development projects are mainly located in the central and the northern Peninsular Malaysia with a total potential GDV of over RM2.4b. Currently, it has five projects in the pipeline with combined unbilled sales of RM311m as of end-June 2012. One of them is the Verticas Residensi project in Jalan Ceylon, located at the heart of Kuala Lumpur’s Golden Triangle. With a takeup rate of 70% as of June 2012, the project, which is slated to complete by 2Q2013, will be a major contributor to the group’s property development business in FY13.
Huge growth potential in retailing. Wing Tai carries 11 fashion brands in Malaysia such as Topshop, Topman, Dorothy Perkins, Warehouse, Pumpkin Patch, Wallis, Karen Millen, BCBG Maxazria, Diva, Miss Selfridge and Ben Sherman. The company has a total of 69 retail outlets (excluding Uniqlo) as of end-June 2012. Currently, Topshop, Topman and Dorothy Perkins are the top three sales contributors to the group. In the past three years, the number of stores grew from 53 stores in FY10 to 69 stores in FY12, while revenue per store climbed steadily from RM2.33m/store to RM2.43m/store over the same period. The company is expanding its retailing business aggressively, aiming to open 15 outlets in FY13 and to achieve a total of 100 stores by 2015. Besides Klang Valley, Wing Tai is looking at new market opportunities in eastern Peninsular Malaysia and East Malaysia. In addition, it is currently looking to add new fashion labels to increase its brand portfolio.
Uniqlo to boost earnings. Wing Tai has tied up with Fast Retailing Co Ltd (Uniqlo Japan) under a 45:55 joint venture (JV) agreement. Uniqlo Malaysia’s revenue is expanding rapidly with its five outlets located in Farenheit 88 Mall, Suria KLCC Mall, Mid Valley Megamall, 1 Utama Store, and Setia City Mall. It is eyeing two new outlet openings in Sunway Pyramid and Paradigm Mall by November this year.
BUY, RM2.06 FV. Over the years, Wing Tai has successfully transformed itself from a garment manufacturer to an established property developer and an apparel retailing group. We like Wing Tai for: (i) its ability to tap into its parent company’s extensive networks in Malaysia, Singapore, Hong Kong and China, (ii) its reputation as a premier modern property developer in Kuala Lumpur and Penang, and (iii) tremendous growth potential in its apparel retailing, especially Uniqlo. We are recommending a BUY on Wing Tai with a FV of RM2.06 based on sum-of-part valuation, pegged at the property industry’s average PER of 8x and the apparel retailing industry’s average PER of 8.5x on its projected FY13 earnings.
Background
Duo core businesses. Wing Tai Malaysia Bhd (Wing Tai), formerly known as DNP Holdings Bhd, is a 60.96%-owned subsidiary of Wing Tai Holdings Ltd. It is involved in property development and investment holding, retailing of apparel and garment manufacturing. Its revenue is mainly derived from its two core businesses, namely property development and apparel retailing. Property development and apparel retailing contributed about 57% and 37% of its total revenue respectively in FY12.
Investment Case
High-end property player. Specialising in mid- to high-end segment properties, Wing Tai’s development projects are mainly located in the central and the northern Peninsular Malaysia with a total potential GDV of over RM2.4b. Currently, it has five projects in the pipeline with combined unbilled sales of RM311m as of end-June 2012.
Most of the group’s property development projects in the central region are located within the Kuala Lumpur city centre, including Verticas Residensi and the upcoming projects such as Nobleton Crest, Le Nouvel, and Sering Ukay Phase 3, among others. Projects in the northern Peninsular Malaysia of Penang include Jesselton Hills, BM Utama (Bukit Mertajam), and Impiana Commercial Hub. Its Verticas Residensi project is located along Jalan Ceylon, at the heart of Kuala Lumpur’s Golden Triangle. With a take up rate of 70% as of June 2012, the project, which is slated to complete by 2HFY13, will be a major contributor to the group’s property development business in FY13.
Niche player. Unlike major property developers like SP Setia and Gamuda Land which own big parcels of land, Wing Tai primarily focuses on niche market that emphasises on niche location and product offerings that could maximise earnings. The company is also tapping into resources from its parent company, i.e. Wing Tai Asia’s networks across Asia to promote its property projects.
Adding Lanson Place Bukit Ceylon into its property investment segment. Currently, Wing Tai has two high-end service apartments along Jalan Ampang, Klang Valley managed by Lanson Place, namely Ambassador Row Serviced Suites (221 keys) and Lanson Place Kondominium No 8 (132 keys). It is introducing a new flagship property – Lanson Place Bukit Ceylon in 2HFY13. Wing Tai is planning on rebranding and upgrading both its existing properties as well as cross marketing and promotions, riding on its parent company’s regional exposure.
Adding Lanson Place Bukit Ceylon into its property investment segment. Currently, Wing Tai has two high-end service apartments along Jalan Ampang, Klang Valley managed by Lanson Place, namely Ambassador Row Serviced Suites (221 keys) and Lanson Place Kondominium No 8 (132 keys). It is introducing a new flagship property – Lanson Place Bukit Ceylon in 2HFY13. Wing Tai is planning on rebranding and upgrading both its existing properties as well as cross marketing and promotions, riding on its parent company’s regional exposure.
Huge growth potential in retailing. Wing Tai carries a number of fashion brands in Malaysia such as Topshop, Topman Dorothy Perkins, Warehouse, Pumpkin Patch, Wallis, Karen Millen, BCBG Maxazria, Diva, Miss Selfridge and Ben Sherman. The company has a total of 69 retail outlets (excluding Uniqlo) as of end-June 2012. Currently, Topshop, Topman and Dorothy Perkins are the top three sales contributors to the group. In the past three years, the number of stores grew from 53 stores in FY10 to 69 stores in FY12, while revenue per store climbed steadily from RM2.33m/store to RM2.43m/store over the same period. The company is expanding its retailing business aggressively, aiming to open 15 outlets in FY13 and to achieve a total of 100 stores by 2015. Besides Klang Valley, Wing Tai is looking at new market opportunities in eastern Peninsular Malaysia and East Malaysia. In addition, it is looking to add new fashion labels to enhance its brand portfolio.
Uniqlo to boost earnings. Uniqlo is one of Japan’s top fashion wear brands. In 2010, the company partnered with Fast Retailing Co Ltd (Uniqlo Japan) to open the first Uniqlo fashion store in Malaysia. Under the joint venture (JV) agreement, Wing Tai holds 45% stake in Uniqlo Malaysia while Uniqlo Japan owns the remaining 55% stake. Uniqlo Malaysia established its first outlet at Farenheit 88 Mall, followed by a flagship store in Suria KLCC Shopping Mall. The better-than-expected performance of its Fahrenheit 88 and Suria KLCC outlets drove the company into an aggressive expansion mode, where it proceeded to open three more outlets in Mid Valley Megamall, 1 Utama Store, and Setia City Mall. Currently, the Japanese retail outfit is expected to open two new outlets in Sunway Pyramid and Paradigm Mall by November this year, with a total floor area of over 10,000 sq ft each to showcase various Uniqlo collections including men, women, kids, etc.
Strong brand recognition. Wing Tai’s comprehensive fashion portfolio allows each brand to target different consumer groups. Among them, Topshop appeals to younger generation for its London youth culture and fashion, Dorothy Perkins caters for the plus-size women segment, while Uniqlo is known for its casual wear. Despite stiffer competition from new players such as H&M, which broke into the Malaysian market just recently, we believe with continued brand positioning and brand recognition, Wing Tai’s apparel retailing business will continue to do well.
Industry Prospect
Relatively stable property market outlook. According to CH Williams Talhar & Wong’s (WTW) 2012 property market report, Malaysia’s property market will likely grow at a slower pace compared to 2011. WTW gathered a poll from its branch office managers on the market direction of eight property segments (office, retail, hotel, condominiums, residential, high-end residential, shop-office, and industrial) by three criteria (transaction activity, price and occupancy, and sales rate). Overall market direction is stable (see Figure 10), with both condominium and residential segments showing a stable trend in 2012 versus an uptrend in 2011. Going forward, we expect this stable trend to continue in 2013, given the deteriorating global economic outlook. The International Monetary Fund (IMF) has recently downgraded 2012 global economic growth forecast from 3.5% to 3.3%. The Fund has also revised down its 2013 forecast to 1.5% from 1.8% for advanced countries and from 5.8% to 5.6% for emerging and developing countries.
Consumer sentiment remains strong. According to Malaysian Institute of Economic Research (MIER), consumer spending in Malaysia remains firm with consumer sentiment index (CSI) climbing further to 114.9 in 2Q12, in line with a low unemployment rate of 3.1% in July 2012. Inflationary pressure remains low as well, with consumer price index (CPI) registering an increase of 1.4% in August 2012. In addition, various government measures including the second release of a one-off RM500 aid under the Bantuan Rakyat 1Malaysia (BR1M), the Skim Amanah Rakyat 1Malaysia (SARA 1Malaysia) scheme, as well as salary hike for civil servants should combine to boost the disposable income and purchasing power of Malaysians.
Financials
Weaker FY12 results on exceptional items. Wing Tai reported weaker-than-expected FY12 results, with earnings sliding 16% to RM84.9m despite a 24% revenue increase to RM457.7m. The lower bottom line was mainly attributed to a fair value loss of RM6.0m on its investment property Kondo 8, a one-off impairment of RM13.0m for its Jakarta investment in FY12 as well as the incorporation of tax credit RM30.0m in FY11. Excluding the exceptional items, Wing Tai’s FY12 performance would have been slightly better off than the previous financial year with an EBIT margin of 44%.
Weaker FY12 results on exceptional items. Wing Tai reported weaker-than-expected FY12 results, with earnings sliding 16% to RM84.9m despite a 24% revenue increase to RM457.7m. The lower bottom line was mainly attributed to a fair value loss of RM6.0m on its investment property Kondo 8, a one-off impairment of RM13.0m for its Jakarta investment in FY12 as well as the incorporation of tax credit RM30.0m in FY11. Excluding the exceptional items, Wing Tai’s FY12 performance would have been slightly better off than the previous financial year with an EBIT margin of 44%.
Consistent dividend payout. Despite not having a dividend policy, Wing Tai is constantly been paying dividends since its listing in 1979. In FY11, it paid a net dividend of 8.0 sen (single-tier dividend of 5 sen) and a special dividend of 3 sen per share to reward its shareholders. This translated into a decent dividend yield of 4.6%. Going forward, we expect the company to maintain its dividend trend of paying at least 25% - 30% of its annual net earnings.
Valuation & Recommendation
BUY, RM2.06 FV. Over the years, Wing Tai has been successfully transformed itself from a garment manufacturer to a property developer and an apparel retailing group. We like Wing Tai for: (i) its ability to tap into its parent company’s extensive networks in Malaysia, Singapore, Hong Kong and China, (ii) its reputation as a premier modern property developer in Kuala Lumpur and Penang, and (iii) tremendous growth potential in its apparel retailing, especially Uniqlo. We are recommending a BUY on Wing Tai with a FV of RM2.06 based on sum-of-part valuation, pegged at the property industry’s average PER of 8x and the apparel retailing industry’s average PER of 8.5x on its projected FY13 earnings. The company is currently trading at a single digit forward FY13 PER of 4.7x, lower than its 5-year average PER of 10x.
BUY, RM2.06 FV. Over the years, Wing Tai has been successfully transformed itself from a garment manufacturer to a property developer and an apparel retailing group. We like Wing Tai for: (i) its ability to tap into its parent company’s extensive networks in Malaysia, Singapore, Hong Kong and China, (ii) its reputation as a premier modern property developer in Kuala Lumpur and Penang, and (iii) tremendous growth potential in its apparel retailing, especially Uniqlo. We are recommending a BUY on Wing Tai with a FV of RM2.06 based on sum-of-part valuation, pegged at the property industry’s average PER of 8x and the apparel retailing industry’s average PER of 8.5x on its projected FY13 earnings. The company is currently trading at a single digit forward FY13 PER of 4.7x, lower than its 5-year average PER of 10x.
Source: OSK
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