Wing Tai’s 1QFY14 results were below our expectations, with its MYR82.3m revenue accounting for 13.4% of our forecast. The lower results were  mainly  due  to  lower  contributions  from the group’s  property  development  division.  We  foresee  softer  sales  from  Wing Tai’s  Klang Valley projects, as property purchasing sentiment may be temporarily affected after the 2014 Budget announcement. The group’s apparel retailing segment is also seeing softer margins due to greater competition in the industry. After taking into consideration the lower profit recognition from its property development projects and softer margins for its apparel retailing business, we are trimming our FY14 revenue and  earnings  forecasts  by  13%  and  15%  respectively.  We  maintain  our  NEUTRAL  stance  on  Wing  Tai  and  revise  FV  to  MYR2.45  (from MYR2.77) based on SOP valuation after applying 11x P/E to its property development segment and 9x P/E to its retailing division.   
 
Below  expectations.  Wing Tai’s 1QFY14  results  were  below  our  expectations,  with  revenue/net  profit  of  MYR82.3m/MYR15.7m,  accounting for  c.13.4%/12.5%  of  our  full-year  targets.  The  lower-than-expected  results  were  mainly  due  to  a  lower  contribution  from  its  property development division, especially its Verticas Residensi project that was completed in FY13. The property development division reported a 39% y-o-y drop in revenue to MYR31.1m revenue when compared to 1Q13’s MYR51.3m, while PBT slipped downwards 29% y-o-y to MYR10.8m. It reported  a  softer  set  of  q-o-q  results  in  1QFY14  too,  with  revenue  dropping  53%  q-o-q  to  82.3m  during  the  quarter  under  review  when compared to 4QFY13’s MYR174.0m, mainly due to stronger profit recognition of its property development projects in the previous quarter. 
 
Softer sales for property development projects in FY14. Following the 2014 Budget announcement, specifically the various measures to tackle speculation activities in  the property market,  the property  buying sentiment may  be temporarily affected, as some  buyers will adopt a wait-and-see approach. We foresee Wing Tai’s Klang Valley projects may be facing slower sales, but expect its Penang developments to be largely intact,  as  the  projects  are  focusing  on  landed  properties  with  more  affordable  price  range.  We  are  trimming  our  forecast  for  its  property development segment by 20.5% in FY14F. 
 
Margin erosions in the apparel retailing segment. Wing Tai’s apparel retailing business saw a flat 1QFY14 revenue contribution of MYR44.9m, up 1.1% y-o-y, while PBT contribution of MYR9.0m was 5.5% lower on eroded margins. PBT margin for dipped to 20.0% in 1QFY14 from 21.4% in 1QFY13, which was mainly due to intensifying competition in this business segment. Going forward, on top of the group’s existing 82 retail outlets, Wing Tai plans to expand its retail presence in FY14, adding another 14 outlets (besides  Topshop and Topman) in major Klang Valley malls while strengthening its foothold in Penang. The group is also looking for opportunities to expand into major towns in East Malaysia. 
 
Higher-than-expected dividend for FY13. Wing Tai announced its first and final single-tier dividend of 5 sen per share and a single-tier special dividend  of  5  sen  per  share  for  FY13.  The  total  dividend  of  10  sen  represents  a  payout  of  23.8%,  which  is  higher  than  our  total  dividend forecast of 8 sen per share. We are maintaining our dividend forecast of 10 sen per share for FY14, translating to 29% payout ratio. 
 
Maintain  NEUTRAL,  MYR2.45  FV.  In  view  of  the  lower  profit  recognition  from  its  property  development  projects  and  margin  erosions  in  its apparel  retailing  business,  we  are  adjusting  our  FY14  topline  and  bottomline  forecasts  downward  by  13%  and  15%  respectively.    FV  was revised to MYR2.45 from MYR2.77. Our FV is based on SOP valuation, which is done by applying 11x P/E to its property development unit and 9x P/E to its retailing segment.

Source: RHB