Wing Tai (WT) posted a surprisingly weak 2Q09 net profit of $20.9m, which includes a $16.5m gain from negative goodwill arising from the purchase of more shares of USI Holdings. On a core earnings basis, net profit slumped by 73% yoy, mainly due to lower contributions from its associates and joint ventures.

As a result of the rather weak 2Q, WT’s 1H09 net profit stands at $53.5m (including the negative goodwill), or only 33% of our full-year forecast. We are expecting greater profit recognition from projects such as Helios Residences, Riverine by the Park and Belle Vue Residences in 2H09. However, no new units have been sold since Nov 08.

WT’s retail business is largely catered to fashion, which tend to be a function of discretionary spending. Based on the government’s latest forecast, GDP growth is expected to be between - 2% to -5% in 2009. In addition, Singapore is also experiencing a decline in tourist arrivals. We are now expecting a 10% decline in its retail sales for FY09.

Based on a shareprice of $0.71, we estimate that the price-implied Gross Development Value of WT’s landbank is only $785psf. With prime sites like Anderson 18, Ardmore Point and Belle Vue Residences under its belt, we strongly believe that the shareprice undervalues the landbank, even under such weak market conditions.

We have lowered our FY09 and FY10 forecasts by 15.5% and 12.9% respectively. Despite the challenging year ahead, WT is financially sound with a net gearing of 0.5x and no refinancing woes over the next 12 months. We maintain our BUY recommendation with a target price of $1.23, based on a 50% discount to RNAV.