Wing Tai’s Amara foray may not help its own minorities

[SINGAPORE] Minority shareholders of hotel and property group Amara Holdings who did not accept an earlier offer by Amethyst Assets, which closed in early 2024, have reason to cheer.

Last week, Amara’s minority investors received a far superior voluntary conditional general offer at S$0.895 per share from DRC Investments, compared with the S$0.60 per share offer proposed in 2024. 

However, should minority shareholders of local-listed Wing Tai Holdings be cheering its participation as part of the consortium trying to privatise Amara? I think not.

DRC is 35 per cent held by a fund sponsored by formerly Singapore-listed Hwa Hong and Malaysia-based Newfields. Another 35 per cent shareholder is a wholly owned subsidiary of Wing Tai.

Wing Tai’s managing director and substantial shareholder Cheng Wai Keung’s spouse Helen Chow is an indirect substantial shareholder of Hwa Hong. Their son Kelvin Cheng is an indirect substantial shareholder in the group owning the manager of the Hwa Hong-Newfields fund that is investing in DRC.

Albert Teo, Amara’s chairman and chief executive officer, and his daughter, chief operating officer Dawn Teo, hold the remaining 30 per cent of DRC.

DRC’s offer price represents a premium of 27 per cent over Amara’s closing price of S$0.705 on Apr 23 before the company called for a trading halt the following day and a premium of 42.1 per cent to the volume-weighted average price for the one-month prior to the trading halt.

The offer price also represents a 33 per cent premium to Amara’s end-2024 net asset value (NAV) per share of S$0.673.

However, DRC is likely not silly in paying a premium to NAV. Amara’s end-2024 NAV is based on holding its hotels, namely the 389-room Amara Singapore in Tanjong Pagar, 140-room Amara Sanctuary Resort Sentosa, 343-room Amara Shanghai and 250-room Amara Bangkok, under property, plant and equipment at historical cost. Depreciation is charged to the assets, as are costs needed to bring an asset to operate in the way intended by management.  

In its evaluation of Amethyst’s offer for Amara, Xandar Capital said Amara’s end-June 2023 revalued NAV (RNAV) per share was around S$1.25 or 87 per cent above Amara’s end-June 2023 NAV per share.

The key contributor to the difference between RNAV and NAV was mark-to-market valuations of the hotels. 

Xandar Capital was the independent financial adviser to the directors of Amara, considered independent with regards to Amethyst’s offer.

Amethyst is a consortium linked to Teo and family, and private equity investor Dymon Asia.

Wing Tai

Perhaps, Wing Tai’s board and top management sees the S$0.895 price per Amara share as attractive, given the latter’s updated RNAV may exceed its latest NAV.

Maybe, Wing Tai wants to grow its recurrent income by having ownership interests in Amara’s hotels as well as its investment properties. After all, property development profits are lumpy, its margins in Singapore are thin and home buying sentiment might be uncertain given a weaker economic outlook.

As at end-2024, Amara owned investment properties worth S$385.4 million, based on fair market values. Key assets include 100 AM in Tanjong Pagar and in Shanghai – both of which have a mix of retail, office and car park spaces.

Might Wing Tai see potential to redevelop the Tanjong Pagar site, which houses Amara Singapore and 100 AM, into a new mixed-use development, possibly with higher gross floor area?

But it may not make sense for Wing Tai to buy into Amara at a large premium to NAV when Wing Tai itself is trading far below NAV.

Wing Tai’s investment in Amara is likely to get marked down by the market substantially, assuming Wing Tai continues to trade at a deep discount to NAV.

As at May 2, Wing Tai traded at a discount of 70 per cent to its end-2024 NAV per share of S$3.91.

Sure, Wing Tai is not alone among Singapore-listed property groups for trading at a large discount to NAV.

For one, its trading liquidity is poor. Based on latest corporate filings, Cheng Wai Keung’s direct and deemed interest in Wing Tai amounts to about 61.7 per cent.

Critically, Wing Tai’s recent financial performance has been dismal. It made losses for the financial year ended Jun 30, 2024. The latest NAV per share of S$3.91 is down by 9.5 per cent versus that of S$4.32 as at Jun 30, 2022.

For the half year ended Dec 31, 2024, Wing Tai reported profit attributable to equity holders of S$10.1 million. Based on annualising the said profit and end-2024’s equity attributable to equity holders of nearly S$3 billion, return on equity would be around 0.7 per cent – hardly tempting to investors.

Perhaps, what Wing Tai’s board and management should prioritise is improving the financial performance and ownership structure of its various assets, over participating as part of a consortium buying Amara.

For example, can the group become more asset light and recycle capital more efficiently? Is the group being dragged down by its investment in Hong Kong-listed Wing Tai Properties? Should the group exit its retail business in Singapore and Malaysia?

Property mergers

Regarding Amara, what might better serve Wing Tai’s minority shareholders is for it to merge with Amara through an exchange of shares.

A merger will help Wing Tai bring in new shareholders and raise its number of shares outstanding, which may in turn drive better trading liquidity.

While government-led efforts are ongoing to strengthen the competitiveness of Singapore’s equities market, undervalued property-linked listed groups are exiting the local bourse. 

To support equities market development, mid-size listed property and/or hotel groups should consider merging.

Potential mergers involving groups such as Bonvests Holding, Far East Orchard, Metro Holdings, OUE and Tuan Sing Holdings to create greater scale and generate better trading liquidity can help drive potential share price re-rating.  

Ultimately, Wing Tai’s Amara foray will cheer Amara’s minority shareholders but do little to help its own minority shareholders. Wing Tai’s board needs to act urgently to improve the group’s financial performance and craft an investment story that is fit-for-purpose.

The writer holds shares in Wing Tai