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  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.

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.

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.

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%. 

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.

Source: OSK