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An incomplete analysis of Wing Tai Holdings Limited.

Wednesday, October 22, 2014

Someone asked me that since I bought into OUE Limited at a 50% discount to NAV, why not Wing Tai? Wing Tai's NAV/share is $3.78 and it last traded at only $1.74. That is a massive 54% discount to NAV.

Well, both OUE Limited and Wing Tai might be in the real estate business but they are not exactly the same. Wing Tai makes most of its money from property development, more than 80%, in fact. On the other hand, OUE Limited keeps its exposure to property development to a smaller 20% or less.

Of course, we know that in the current day environment with all the cooling measures in place and also an impending increase in interest rates, property development business is really not as promising as it was a few years ago.

We could say that Wing Tai also develops properties in Malaysia and China but are the residential real estate markets there insulated from rising interest rates? I would think not.

In an environment that makes building and selling residential real estate difficult, it is the property companies which have strong recurring income streams that will weather the downturn better. In this area, Wing Tai is rather weak as its investment properties are a small fraction in value compared to its development properties.

Undeniably, for Wing Tai to do well, its development properties will have to sell well but it seems unlikely that this is going to be the case.

Revenue has dropped significantly in the last 12 months and the decline could continue for some time to come. Although Wing Tai's boss said that they are not dropping prices to move stock, I would not be surprised if he should eat his words in the next 12 to 24 months.

Unless some of the earlier cooling measures should be removed by the Singapore government, things are unlikely to look up for the property sector. Unless interest rates stay low in future, investors are more likely to avoid investing in properties.

Wing Tai will have to pay extension charges for development properties which have not been sold two years after receiving their TOPs. It will be a percentage of the respective sites' purchase prices. 8% in the first year, 16% in the second year and 24% in the third and subsequent years.

To avoid paying these charges, Wing Tai could do a SC Global and privatise but with only slightly more than 50% of the issued shares in their control, it would cost the Cheng family quite a fortune to do so and Wing Tai's boss has already said that there is no plan to privatise.

I am not an expert analyst on the property sector and I am not sure how well Wing Tai's properties will sell in future but I am willing to bet that conditions will continue to be difficult. Revenue could continue to decline and if Wing Tai should drop prices on its development properties, revenue could receive a boost but earnings might be flat.

The question now is really what is Wing Tai worth on a per share basis?

Well, I am more sanguine about its investment properties than its development properties. Those are worth about 72c or 73c a share. These properties are recurring income generators. Income could be increased by improving occupancy levels or increasing asking rents or rates where possible.

As for its development properties, the only way for them to make money for Wing Tai is if they were sold. Otherwise, even if we were to assume further write downs in value, they are just dead weight if they remain unsold. With the extension charges payable 2 years upon receiving their TOPs, they will become liabilities until they are sold. Therefore, to be very conservative, taking into consideration possible bigger write downs in future, to me, they could be worth $1.50 a share.

Wing Tai has cash on hand but not enough to pay off all its borrowings. They are short of some 58c per share. However, unless things get seriously bad, Wing Tai is in no danger of going belly up. It could always sell a fraction of its development properties cheaper to raise cash. At the moment, with the cash that it has, Wing Tai is at least able to reduce borrowings further in case interest rates should go up in order to avoid higher finance cost.

So, based on this incomplete analysis of Wing Tai Holdings Limited, to me, a fairly good entry price would be $0.72 + $1.50 - $0.58 = $1.64, give or take a few bids.

Technically, $1.64 looks like it could be tested as a support while in the short term, we could see a rebound in share price as the MACD formed a higher low.

See: Full Year 2014 Financial Statements.

Related post:
OUE Limited: A nibble.

I could not afford it but now I can.

Tuesday, October 21, 2014

In the past, my mattresses cost between $150 to $400 each. I am usually not very picky and the price is more important a consideration. My last mattress was a queen size mattress from IKEA that cost about $400. Maybe, a bit lesser than that.

However, as I age and am more prone to aches, I have become more aware of why I should get a good mattress that is suitable for me. So, I decided to "invest" in a good mattress in the hope of sleeping better. OK, we can have a debate on whether a good mattress is an investment or a consumption item later.

Anyway, I visited quite a few stores and two of them were branches of big local chain stores. There were so many brands available and almost all of them had some kind of special offer going on. The many different types of mattresses on offer were impressive. Some salespeople were very good while some really needed more training. Some stores had more ammunition to help their salespeople get more business too.

I lingered on a couple of mattresses because I rather liked them. They cost between $3,000 to $4,000. Almost right away, the salespeople would say how I could pay for them with easy instalments and that I should not have to worry about the seemingly high prices.

OK, it might be my fault for giving them the impression that I needed to pay by instalments because I was wearing a very worn (and some parts torn) cargo pants and a ratty looking t-shirt. However, I wondered how many people bought those mattresses even though they might not have been able to pay $3,000 to $4,000 in a single payment?

"I could not afford it but now I can."

Sounds good?

That sentence is incomplete, actually.

"I could not afford it but now I can because they are letting me pay in instalments."

Doesn't sound so good anymore, does it?

In fact, even if we had the money to pay $3,000 to $4,000 for a mattress in a single payment, we might want to try delaying gratification. Put the money to work and, then, buy the mattress 10 years later.

OK, I can imagine some readers getting ready to give me a piece of their minds on this matter now. Just because I waited almost 20 years to get an atas mattress doesn't mean that others must do it too.

Well, it doesn't have to be a mattress per se but you get the idea.

Could be mistaken for a mattress.

Payment by instalments for consumption items is really giving in to instant gratification. It does nothing to create wealth and, in fact, holds us back for as long as it takes to make full payment for these purchases. The opportunity cost could be quite astounding too.

So, what would sound good?

"I could not afford it but now I can have it and keep my money too."

Wait, I close my door first. OK, you can start throwing things at me now. Nothing explosive, please.

Related posts:
1. The evil instalment schemes and their minions.
2. The Millionaire Next Door.
3. An easy way to improve cash flow in life.

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