Q4 profit drops 48%; proposed dividends total six cents per share
The property and retail group on Thursday posted a 48 per cent drop in group net profit for the fourth quarter ended June 30, 2014, to S$143.1 million from the same year-ago period.
Revenue for the three months fell 42 per cent to S$179.8 million.
Full-year net earnings too slid 52 per cent to S$254.4 million amid a 40 per cent slump in revenue to S$803.4 million. The group suffered a big slide in revenue from development projects due mainly to lower contribution from the Foresque Residences, Helios Residences and Belle Vue Residences in Singapore and Verticas Residences in Kuala Lumpur.
It has recommended a first and final dividend of three Singapore cents per share and a special dividend also of three cents for FY2014. In FY2013, the payouts were three cents and nine cents respectively.
Earnings per share (EPS) fell to 18.22 cents in Q4 FY2014 from 35.21 cents in Q4 FY2013. Full-year EPS slipped to 32.39 cents from 67.81 cents. Net asset value per share rose to S$3.78 as at end-June 2014 from S$3.62 at end-June 2013. The counter ended 0.5 cent higher at S$1.87 on Thursday. Wing Tai released its results after the stock market closed.
Wing Tai chairman Cheng Wai Keung noted that the Singapore residential market is trending downwards on the back of excess supply in the next two years and expectations of US interest rates rises. "I personally believe (prices in the) upgrader market will correct more than the high end. High end for the last five, six years, has been trending downwards in terms of selling prices (whereas) upgrader market continued to move up."
The group has two projects in Singapore's posh Ardmore Park area. It has sold three of the 43 units in one project while sales have yet to begin at the next door 156-unit project, a JV with City Developments. "We are holding our prices firmly," he said on the sidelines of the results briefing. "The good part for us this cycle is our gearing is (low, at) 0.16 time."
Mr Cheng contended that a developer chopping prices of high-end projects would destroy its brand. "It's almost like in retail. If (you are) LVMH and try to lower prices by 10 per cent, you'll destroy your brand. Similarly in the high-end residential market, you are selling a brand, an image - not a utility."
Giving his take on the Singapore retail industry, Mr Cheng said: "I have never seen so adverse trading conditions. Starting last year, it seems like an alignment not of stars but an alignment of adverse factors."
He highlighted the reduction in tourism arrivals, a tight labour market arising from tightening of foreign labour supply as part of the government's productivity drive, more brands entering the Singapore market, e-commerce, and rentals.
"(Retail) rentals - depends on which side you are on. My fellow developers say there is not much rent increase. My fellow retailers say it is killing them," he said, drawing laughter at the briefing. "But as a retailer...even if the rental did not increase, if your sales go down, your rental cost as a percentage of sales goes up and that squeezes margins."
On China, Mr Cheng said he is still optimistic. Taking a three-to-five year medium-term horizon, and given wealth creation especially in Tier 1 cities, he argued the fundamentals are still there, for the mid to high-end residential segments.
"Wing Tai still has appetite for at least one (more) project in a first-tier city like Guangzhou or Shanghai, or a super second-tier city (like Chengdu or Chongqing)."
Singapore property groups have posted a mixed bag of results for the quarter ended June 30. Among the property giants, CapitaLand managed a 14.5 per cent rise in Q2 FY2014 net earnings to S$438.7 million, thanks to stronger operating profits, higher revaluation gains from investment properties and a write-back of impairments. However, revenue slipped 13.2 per cent amid lower development sales in Singapore and China. The group's top management acknowledged residential headwinds in Singapore and China.
Rival Keppel Land, too, faced the same challenge yet achieved a 12.2 per cent gain in Q2 net earnings to S$107.2 million. This was due partly to its fund management business Alpha Investments.
City Developments Limited (CDL) suffered a 32.8 per cent drop in Q2 net earnings to S$137.9 million - due to the absence of significant divestment gains that had boosted the same year-ago bottomline. However, the group unveiled a new strategy of actively looking at new geographies - Japan and Australia - and developing fund management products.
Regina Lim, head of Singapore equity research and Asean at Standard Chartered, has neutral ratings on CDL, CapitaLand and KepLand. Although the counters are cheap, "share price outperformance is unlikely within the next 12 months unless there are policy changes or a return of private home sales volumes", she said.
That said, Ms Lim sees a sweet spot in the prime residential segment, amid recent news of bulk sales at Grange Infinite and The Vermont on Cairnhill around the S$2,100 psf level. "This is a positive signal that transactions are picking up and could put a floor on prime residential prices, which have underperformed the mass-market by 20 per cent in the last three years," she added.
Eli Lee, investment analyst at OCBC Investment Research, notes that developers that have been more focused on the local residential market seem to have common threads in their strategies: No 1, expedient diversification into overseas markets, and No 2, reallocating capital into investment properties generating recurring income. "We judge the second strategy to be a sound move, particularly if there is already significant expertise in managing commercial assets. The first strategy is potentially rewarding - though execution risks could exist in new markets," he added.
Source from Business Times