5 Things I Learned from Wing Tai Holdings’ AGM

Units at two luxury properties owned by Wing Tai Holdings, Nouvel 18 and Le Noveul Ardmore, remain largely unsold and the company has to pay for qualifying certificate (QC) charges if it fails to sell them. Extension charges amounting to $14 million due April this year for Noveul Ardmore will slap the company’s FY2016 bottom line. For Nouvel 18, it will affect the company’s financial performance in FY2017 if the government’s policy on QC charges remains unchanged.

A concerned shareholder wanted to know what the company’s plans were for dealing with the QC charges and everyone at the AGM was by surprised with chairman Cheng Wai Keung’s candid answer.

“Of course, I am always hopeful the government may change.”

“Err… sorry?”

“The government’s policy may change.”

As soon as the chairman repeated his answer, the room filled with laughter and he quickly followed up with an explanation.

“You may sell one or two units after you lower the selling price but the trouble is that by the third and the fourth unit, the market will expect lower prices and it will never end. This is very different from discounted items. For discounted items when prices are lowered, you can clear the stocks but not in high-end properties. Our policy is to maintain our price so we can safeguard our buyers’ interests. Just imagine you bought a unit at $4,500 psf and after your purchase, the developer sold the same unit at $4,000 psf. You will be very unhappy.”

After some further comments, there were basically two main points:

  • There is no intention to turn unsold units into service apartments
  • The company will maintain the selling price of unsold units

Other than shareholder concerns on the unsold properties, here are four other things I learned at Wing Tai Holdings’ AGM 2015:

  1. Wing Tai has a retail arm that focuses on the Southeast Asian market — mainly Singapore and Malaysia. The retail brands include Adidas, Dorothy Perkins, G2000, Topshop, and Uniqlo. As at June 2015, there are 255 retail stores — with 17 brands located in Singapore and 12 in Malaysia. The retail segment remains challenging and its profit figure is rather insignificant to the overall profit of the company.
  1. Wing Tai has a strong balance sheet with low debt and a large cash hoard which is ready to catch the cycle when the property industry turns. A shareholder urged the directors to do something about the $881 million in cash sitting in the bank: “I personally think the dividend is too low. With the huge cash surplus we have, I suggest we buy back more shares.”wing tai dividend
    Wing Tai’s dividend payout policy is 30% and despite a drop in earnings, the directors have maintained the base dividend at 3 cents which has been consistent for the past ten years (albeit there were no special dividends for the latest year). The chairman said: “My philosophy is that I believe in any business, there is always a cycle. If the cycle has not turned, the only thing I can forecast relatively with confidence is that the probability of the cycle will turn is even closer. So the policy is to keep the cash in the company to catch the cycle.”
  1. With the recent market turbulence, share price of Wing Tai has fallen to $1.51 (as at 27 Jan 2016). Comparing this against its net asset value of $4.1 per share, the stock’s price-to-book is only 0.39. At the AGM, another disappointed shareholder pointed out the company’s net tangible assets have been growing consistently the past few years yet it doesn’t seem to contribute any value to existing shareholders, at least in share price.wing tai nav
    The chairman patiently explained: “How the market (share price) performs against the NAV are two different issues altogether. The market simply didn’t respond to our underlying value.”With that value in mind, some shareholders would be pleased to note that the company has been buying back shares from the open market.wing tai buyback
  1. Will Wing Tai venture into other businesses or markets? The answer is no. The chairman believes in only doing the business he knows best and Wing Tai will remain focused on Singapore, Malaysia, Hong Kong and China. As for Australia and the UK, the chairman sounded his concerns in those two markets, especially Australia, as the prices of property have gone up rapidly.

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(Photo credit: Wing Tai Asia)

Rusmin Ang is an equity investor and co-founder of The Fifth Person. His investment articles have been published on The Business Times BTInvest section and Business Insider. He has also been featured multiple times on national radio on 938LIVE for his views and opinions on how to invest successfully in the stock market. Rusmin is on the speaking circuit for CIMB Securities (Malaysia) and has spoken at events in Penang, Sibu and Kuala Lumpur and is the co-author of Value Investing in Growth Companies published by Wiley, Inc. The book can be found in all major book stores worldwide and on Amazon.com, Barnes & Noble and Apple's iBooks. Rusmin was actually a former SIAEC scholar who gave up his scholarship and a cushy career to follow his itch of learning how to be a better investor and ultimately lead a life of financial independence. He believes that anyone, even with a regular job, can achieve more financial peace-of-mind by investing intelligently and safely for the long term.

2 Comments

  1. Jonathan Lloyd

    January 28, 2016 at 11:17 am

    Excellent article Rusmin,

    One thought springs to mind. It’s widely Wing Tai are sitting on a huge amount of unsold inventory at Nouvel 18 and Le Noveul Ardmore, and the chairman’s reasons for not discounting to meet the market is that it would make the few existing buyers that have completed purchases unhappy. But what about Wing Tai’s shareholders? Wouldn’t they be happier to have that capital working on a new development (effectively land-banking) instead of sitting idle? (Did anybody bring up this obvious point at the AGM). Surely if you buy property you should accept that the price can go and down and you take some risk that could occur. It could be several years before the luxury residential property market recovers. If left empty over that time these places will inevitably deteriorate unless maintained. Again what about the shareholder’s best interests?

    • Rusmin Ang

      January 29, 2016 at 12:34 am

      Thanks Jonathan,

      Good point. However, the chairman is skeptical on the strategy of giving discounts just to offload those units because he believes the strategy may do more long-term harm than good.

      By giving a discount on one unit, buyers may expect another discount next time. From the shareholders’ perspective, we can say that he is safeguarding the profit margin, thus providing higher shareholder returns.

      Again, only time will tell. If the down-cycle prolongs for too long, this might be a bad move. But he seems confident that the local property market cycle will be rebound.

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