CGS-CIMB analyst Lock Mun Yee has upgraded Wing Tai Holdings from “hold” to “add” with an increased target price of $1.98, from $1.85 previously.

The upgrade comes despite the group missing the brokerage’s expectations with Wing Tai’s core earnings per share (EPS) of 4.8 cents and 7.4 cents for 2H and FY20 at 46% and 70% of its forecast.

On August 28, Wing Tai reported net losses of $16.8 million for 2H20 ended June, despite a 46% y-o-y increase in revenue to $187.5 million. The losses were mainly attributable to fair value losses from its wholly-owned investment properties as well as share of revaluation losses from associates and joint ventures and lower retail contributions.

For the current financial period, the group proposed a final dividend of 3 cents per share.

Lock has also lowered her estimates for the group’s FY21-22 EPS by 30-31.4% due to the slower contributions from its retail segment and Malaysia development.

“Wing Tai is trading at a 57% discount to revalued net asset value (RNAV) of $3.98 and we think downside is limited,” says Lock.

“Apart from a recovery in its earnings trajectory from FY21F, we believe the re-rating catalyst for share price outperformance will also likely come from redeployment of capital into new development projects or investment properties,” she adds.

OCBC Investment Research analyst Chu Peng and UOB Kay Hian Research analysts Loke Peihao and Nicola Ho have maintained their “buy” recommendations on the stock.

While Wing Tai’s results also came in below OCBC’s expectations on fair value losses, Chu remains positive on the stock due to its undemanding valuation.

“Wing Tai currently trades at a consensus blended forward price-to-book ratio of 0.40x, which is near 1 standard deviation below its 10-year mean of 0.50x,” says Chu.

“Factoring in the impact of softer market outlook from a prolonged Covid-19, we fine tune our earnings forecast and increase our RNAV discount to 40%, our fair value estimate hence decreases from $2.25 to $2.01,” Chu adds.

Wing Tai’s development properties recorded a 67% y-o-y growth in its revenue of $226.8 million mainly due to the additional units sold in Le Nouvel Ardmore and progressive sales recognized from The M.

However, following the strong reported sales over The M’s first weekend of public preview in February, sales appear to have tapered down. Chu says this is likely due to the impact of the circuit breaker measures and weaker buying sentiment in the country.

Wing Tai’s investment properties and retail segments were impacted by Covid-19 too, with FY20 revenue dropping 9% and 32% y-o-y to $45.2 million and $91.5 million respectively.

For UOB’s Loke and Ho, Wing Tai has “plenty of firepower” with a $1.1 billion acquisition headroom, assuming a comfortable net gearing of 50%.

“Wing Tai’s net gearing (incl. perps) declined to 0.15x (-7ppt yoy), which was reduced by its S$276m cash flow generated from operating activities (CFO),” say Loke and Ho.

The pair also see Singapore residential sales for the group returning “with a vengeance” in August following the circuit breaker measures amid pent-up demand and discounting strategy.

On that, Loke and Ho have raised their net profit estimates for FY21-22 by 3% and 4% respectively, “deferring revenue recognition from potential construction delays for its Singapore projects”.

Like OCBC’s Chu, the analysts have lowered their target price on Wing Tai to $2.04 from $2.54 previously.

As at 4.11pm, shares in Wing Tai were trading 3 cents higher, or 1.7% up, at $1.74.