The Three Numbers That Underpin Wing Tai Holdings

 WingTaiIf there is one type of industry that Singapore does not have a shortage of, it is property developers. It also seems that every man who owns a business – if they aren’t already a property developer – wants to be a property developer one day.

Wing Tai Holdings (SGX: W01) started life in 1955 in Hong Kong as a garment factory. It still has connections with garments today but its main focus is property development in Singapore, Malaysia, Hong Kong and China. Around 80% of the company’s revenues come from property development, while the remainder is generated from investments and retail.

Wing Tai Holdings boasts one of the highest Returns on Equity (RoE) in the market. At 19%, it is more than twice the returns generated by Singapore’s blue chips. The median RoE for the 30 companies that make up the Straits Times Index (SGX: ^STI) is around 8.5%.

The main contributor of Wing Tai’s extraordinarily high RoE stems from its outstanding Net Income Margin. At 39.5%, the company generates more bottom-line profit for every dollar of sales than peers City Development (SGX: C09) and CapitaLand (SGX: C31). However, it is lags Hongkong Land (SGX: H78), which generates around S$68 of profit for every S$100 of sales.

Wing Tai only produces 30 cents of sales for every dollar of asset employed in the business. That is not too surprising given the asset-intensive nature of property development. That said, Wing Tai’s Asset Turnover is better than that of City Development, CapitaLand and Hongkong Land.

Wing Tai doesn’t employ a great deal of leverage, though it does have borrowings. It has total liabilities of around S$1.7b and total assets of roughly S$4.7b. This equates to a Leverage Ratio of 1.6, which is par for the course for Singapore companies.

By dismantling Wing Tai’s Return on Equity, it is easy to see what exactly underpins the company. Its RoE of 19% is the product of an outstanding Net Income Margin of 39%; a modest Asset Turnover of 0.3 and a bearable Leverage Ratio of 1.6.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.