Company Update: Near-term development earnings are well assured
In 2H21, Wing Tai Properties handed over the units at OMA OMA in Tuen Mun to buyers. As of now, the company has sold 419units, or 90% of total, at OMA OMA at an ASP of HK$13,500psf. Over 95% of sold units have been handed over with the corresponding profit to be booked in 2H21.
The company has also sold >460 units at OMA by the Sea in Tuen Mun since the initial launch in 2019. This represented c.89% of total 517 units. Scheduled for completion in 2H22, OMA by the Sea should be the key earnings producer in FY22. Both OMA OMA and OMA by the Sea should offer pre-tax margins of c.20%. Recently, Wing Tai Properties sold the last unit at The Carmel for HK$85m which will be recognised in FY22.
Wing Tai Properties will commence the foundation works of its Kwu Tung project in 2022, with project pre-sale expected in 2024. The site was acquired for HK$2.62bn or HK$9,209psf via government tender in Jun-21. Near the Hong Kong Golf Club, this residential project is set to benefit from the development of Northern Metropolis announced in Policy Address in Oct-21.
Occupancy of its rental flagship Landmark East in Kwun Tong is stable at c.85%. About one of third of leases are scheduled for expiry in 2022 with a significant portion relating to government institutions. Occupancy risk should be relatively low but reversionary growth should continue to be negative. Shun Hing Building in Kowloon Bay is >80% occupied with spot rents of HK$12-13psf. The company is working on the land premium with the government to redevelop this industrial building into office use.
Meanwhile, rental performance of its London commercial portfolio remains steady. Wing Tai Properties continues to explore acquisition opportunities in London commercial market.
Lanson Place Causeway Bay hotel became a quarantine hotel since Nov-21 with improved occupancy. The Lanson Waterfront suites in Shau Kei Wan is currently 70-80% let. On the other hand, operation of Lanson Place Bukit Celyon in Kuala Lumpur remains challenging.
In the past three months, shares of Wing Tai Properties rose 3% outperforming the broad market by 11ppts. The stock is trading at 72% discount to our assessed current NAV. Valuation is inexpensive in view of its high earnings visibility. But there does not exist near-term catalyst to narrow the discount to NAV. Based on target discount of 70% to our Dec-2022 NAV estimate, we derive our TP at HK$4.93. Downgraded to HOLD.