Expect longer time to clear inventory. With the introduction of the Additional Buyer’s Stamp Duty (ABSD) of 10% for foreign homebuyers, transaction costs have effectively increased for this segment of buyers. Wing Tai may now take a longer time to sell its high-end units. We have reduced our target price to $0.97 and are downgrading the stock to Hold as we see few positive catalysts in the next 12 months.
Substantial exposure to high-end segment. Of Wing Tai’s unsold landbank of about 850,000 sq ft in attributable GFA, we estimate that approximately 62% is positioned for the high-end segment, comprising the unsold units at the Helios Residences, L’VIV, Le Nouvel Ardmore and Nouvel 18. With foreigners and companies accounting for over 40% of the buyers in this segment, we expect transactions of high-end properties to slow to a trickle this year.
No hurry to reduce prices. In our opinion, Wing Tai is in no hurry to reduce its ASPs to move its high-end inventory yet, given its strong balance sheet and the current high costs of replenishing landbank. However, while headline ASPs are likely to remain downward-sticky, developers may subsequently absorb the ABSD either partially or in full to attract buyers. We have therefore reduced our ASP assumptions for Wing Tai’s high-end projects by 10% to factor in this possibility.
Some buffer from upgraders’ market. Even if the high-end segment comes to a complete standstill, Wing Tai is likely to focus on selling the remaining 287 units of Foresque Residences. Demand for this project is unlikely to be curtailed significantly, as non-PR foreigners and corporates only account for about 10% of the buyers so far.
Victim of circumstances. Having reduced our ASP assumptions for the unsold high-end projects by 10% and ascribing a steeper discount of 65% to RNAV, we have lowered our target price to $0.97. Though valuations are undemanding, we downgrade Wing Tai to Hold following the latest round of policy action.
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