Idea of the Week: A safer option among the real estate developers

Brief Introduction

Wing Tai Holdings (“Wing Tai”) is a home-grown conglomerate in Singapore that owns businesses across several industries including property investment and development, lifestyle retail, and hospitality. The company started as a garment manufacturer, later pivoting into the real estate scenes across Singapore and Malaysia. Wing Tai holds quite a substantial footprint across the Asia-Pacific region, with real estate properties found in Singapore, Malaysia, China, Japan, Australia and Hong Kong (Chart 1).

The prominent names among Wing Tai’s retail portfolio are Adidas, G2000, and Uniqlo – particularly with Uniqlo’s parent company, Fast Retailing, as an important joint venture partner with Wing Tai. Meanwhile, property investment and development in Hong Kong are consolidated under Wing Tai Properties, an associate company with Wing Tai holding approximately 33% stakes in it.

Chart 1 – Wing Tai’s asset allocation by geographical locations as of 30 June 2024

Lower revenue and non-cash losses weighed on profits in FY24

For the full year ended 30 June 2024 (“FY24”), Wing Tai saw significant drops in revenue and profit – with the company experiencing an overall loss. Revenue fell drastically from SGD 476.3m (FY23) to SGD 169.2m (FY24), primarily owing to the lack of new launches across FY24, while FY23 saw major project completions. Operating profit similarly saw a drop, falling from SGD 26.9m (FY23) to SGD 22.5m (FY24) largely due to the lower contributions from property development in FY24, partly offset by lower expenses across the year.

More importantly, losses before income tax burgeoned from SGD -10.7m (FY23) to SGD -70.9m (FY24). The increase in losses was contributed by higher finance costs (+28% YoY) and also a greater share of losses coming from associated and joint venture companies (FY24: SGD -58.7m vs FY23: SGD -10.4m).

Losses from the associated and joint venture companies in FY24 had been contributed by the poor performance of Wing Tai Properties (“WTP”) at SGD -108.0m, offset by profits from Uniqlo and other retail joint ventures at a total of SGD 49.4m. Regarding these losses, Wing Tai highlighted that it was mainly non-cash in nature, including (1) a write-down in carrying amount for development properties of SGD 34.1m and (2) fair value losses on investment properties of SGD 63.0m. We believe the non-cash losses were predominantly contributed by WTP, considering the net profits contributed by Uniqlo and other retail joint ventures.

Excluding non-cash losses, core profit remains positive

Taking a closer look at WTP’s 1H24 results, the management reflected that excluding the total non-cash net valuation losses of HKD 1,369m, the core consolidated profit attributable to shareholders would be HKD 32m. Making a similar adjustment for Wing Tai, excluding the WTP’s drag on profits, we note that the Group’s adjusted profit would be in the positive region at SGD 37.1m for FY24, (Chart 2). 

Despite the net loss experienced for FY24, Wing Tai continues to see positive operating cash flow before working capital changes at SGD 11.3m (FY24), albeit a drop from FY23’s figure of SGD 28.8m. Including working capital changes, net operating cash flow increases to SGD 321.5m (FY24), as compared to SGD -244.5m (FY23). Wing Tai sees exceptionally large working capital flows owing to its loans given to or repaid by subsidiary companies, which are classified under trade and other receivables (FY24: SGD 280m vs FY23: SGD -155.9m).

Chart 2 – Wing Tai’s losses experienced for FY24 (in SGD m)

Chart 3 – Development of revenue, gross profit and operating profit figures for Wing Tai

Expect a greater focus on SG and MY markets

During Wing Tai’s Annual General Meeting in October 2024, the management commented on its future direction and steps. For one, the management continues to highlight Singapore and Malaysia as the key markets of focus for property development, which have seen comparatively better performances in recent years. In tandem with this, the Group remains focused on managing its balance sheet to ensure it stays resilient and sustainable while taking advantage of any investment opportunities that may arise. Additionally, the management remarked that it is in the midst of restructuring the G2000 business as it has not been performing well.

Within the FY24 Annual Report, Wing Tai’s management reflects a “cautiously optimistic” view about its upcoming performance – a stance we agree with. On one hand, we do see several opportunities for Wing Tai to potentially perform well in FY25, mainly owing to The LakeGarden Residences launched in March 2024 and an upcoming project in River Valley. But on the other hand, the tapering of interest rates across Singapore and Hong Kong has slowed down significantly as we entered 2025, although the lowered interest rates would still benefit the real estate sector.

Optimistic on earnings outlook - retail and investment income remains resilient

Nonetheless, despite the volatile property development earnings, Wing Tai continues to see reliable income via its retail operations and investment properties. Revenue for retail stands at SGD 40.8m in FY24, as compared to SGD 45.2m in FY23, whereas revenue for investment properties rose slightly to SGD 42.8m in FY24, up from SGD 40.1m in FY23. As such, we are largely on the optimistic side for Wing Tai’s in 2025, while acknowledging that further impairment losses owing to real estate valuation adjustments may persist.

For Hong Kong’s real estate sector, we do see the potential for demand to remain weak, especially amidst the recent negative sentiments surrounding the real estate developers in Hong Kong. With that said, we ultimately do not expect WTP’s performance to have a direct impact on Wing Tai. We believe the option to let go or divest WTP remains available for Wing Tai if truly necessary and Wing Tai’s strong balance sheet position – to be explained in the below section – will be the reason it stands attractive for bondholders.

Low net debt position, helped by strong cash levels

Wing Tai holds a relatively low net debt position, as it sits on a substantial cash pile with net gearing (debt to equity) of just 0.06x. The Group’s debt rose from SGD 671m (FY23) to SGD 796m (FY24), refinancing its perpetual securities and medium-term notes with newly issued bonds. Wing Tai holds minimal current debt at only SGD 21.6m (~3% of total debt) whereas its cash and cash equivalent stands at SGD 606.9m (FY24).

Owing to the significant increase in cash and cash equivalents, net debt instead fell for Wing Tai from SGD 269m (FY23) to SGD 191m (FY24) across the year. With the net loss and perpetual securities redemption resulting in a drop in equity, the combination of factors enabled the low net gearing ratio to fall further from 0.08x to 0.06x.

However, given the sub-optimal financial performance in FY24, Wing Tai’s EBITDA-interest coverage ratio remains at a low – a marginal increment from 0.3x (FY23) to 0.7x (FY24). For the derived EBITDA-interest coverage ratio, we noted that Bloomberg’s calculation adjusted for the losses incurred by associates and joint ventures, which would otherwise been negative. Despite so, we are not concerned with the issuer’s ability to pay coupons given two reasons – (1) Wing Tai still sees positive operating cashflow before working capital contributions/subsidiary loan repayments and (2) it is able to tap into its substantial cash position to make necessary interest payments.

Strong balance sheet position owing to relatively minimal debt position

Wing Tai’s total-debt-to-total-assets ratio stands at 20.0% as of FY24, albeit a slight increase from 16.2% as of FY23 due to both an increase in debt and a decrease in assets. However, as compared to other real estate developers in Singapore, Wing Tai’s net gearing and total-debt-to-total-assets ratio is one of the lowest. As such, Wing Tai holds a relatively strong balance sheet position in contrast to other real estate developers, which is likely due to its prudent approach towards managing its balance sheet and initiating new development projects.

Room for more secured lending to bolster financing abilities

Lastly, the majority of Wing Tai’s debt is unsecured at ~62% of total debt. Wing Tai’s secured bank loans (total of SGD 299.5m) are floating-rate, with investment properties amounting to SGD 136.1m and development properties amounting to SGD 394.6m pledged for the secured loans. Considering that Wing Tai has additional assets available across its investment and development properties for pledging, secured lending will likely be readily available for the issuer if required. As such, on top of the current substantial cash position, we do not foresee any issues with the repayment or refinancing of Wing Tai’s debt.

Table 1 - Wing Tai’s credit metrics across FY23 and FY24

Chart 4 – Comparison across real estate developers in Singapore

Recommendations

While yields offered by Wing Tai’s SGD issuances might not be the highest, they are justified given the issuer’s credit metrics. Owing to the low net debt position, Wing Tai holds one of the better balance sheet positions among the real estate developers in Singapore, while still offering relatively good yields on its debt issuances.

In particular, we believe investors can consider WINGTA 4.800% 26Oct2028 Corp (SGD) and WINGTA 4.380% 03Apr2029 Corp (SGD). At yield levels of around 3.70%, these two issuances offer a rather sweet spot for the investors – a balance between the yields and the remaining years to maturity. These issuances will be great for investors seeking safer SGD bond options within the real estate bond space, amidst rate cuts and falling bond yields.

Overall, despite its operational performance in FY24, we still find Wing Tai to be attractive given its credit profile as compared to other developers. The current substantial cash position and low net debt are great for bondholders and are expected to remain so in the foreseeable future, given the prudent management of the Group’s balance sheet.

Table 2 - SGD issuances from Singapore Real Estate Developers

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in HOBEE 4.350% 11Jul2029 Corp (SGD), STRTR 3.750% 29Oct2025 Corp (SGD), STRTR 4.100% 04May2026 Corp (SGD) and the analyst who produced this report hold a NIL position in the abovementioned securities.