THE BUZZ
WCT announced that its wholly-owned subsidiary, Iris Green
SB, has entered into a conditional share sale agreement with Eng Lian
Enterprise SB, Shen & Sons SB and AMC SB, for the acquisition of the
entire equity interest in Timor Barat Properties SB for a total cash
consideration of RM450m. Timor Barat owns 3 parcels of land along Jalan Awan
Cina, Taman Yarl with totaling 57.6 acres.
OUR TAKE
Reasonably priced. We found from Google Map that Jalan Awan Cina is some 12-15km
south-west from the Golden Triangle area. Accessibility to the city center is
fairly decent through Old Klang road or the KESAS and MEX highways. Based on
information provided by jpph.info, an
unofficial proxy to the Property and
Valuation Services Department of Malaysia displaying transacted property prices
in Malaysia, the last transacted land
price in a similar area was going
at an average of RM130 per sq ft in Nov 2010. Based on WCT’s offer of
RM450m, this translates into approximately RM180 per sq ft, which we deem a
reasonable premium given the significant size of the plots involved.
Pending conversion of
land use. The acquisition offer is conditional upon conversion of land use
on 2 of the 3 plots involved from nil to buildings with the conversion premium
of up to RM15 per sq ft, to be borne by Timor Barat’s existing shareholders.
All the 3 plots are largely vacant at this juncture.
An additional plot
possible. Meanwhile, WCT has also secured an option to purchase an additional
plot of land contiguous to one of the 3 plots involved should the alienation of
the said parcel to Timor Barat take place before the acquisition is completed.
Timor Barat had on 16 June 2011 submitted an application to Dewan Bandaraya
Kuala Lumpur (DBKL) for the alienation of the said parcel of land contiguous to
Land 3 as shown in Figure 2. The approval of the said application is still
pending. Although not disclosed in its Bursa announcement, we understand that
the said plot is approximately 10 acres. Based on the agreed pricing of RM150 per
sq ft if freehold or RM135 per sq
ft if leasehold, this could translate into an additional RM59m-RM65m on top of
WCT’s existing offer of RM450m for the 3 existing plots.
Outstanding landbank
to break 1,000-acre mark. Should the acquisition be completed, WCT’s
outstanding landbank could hit 1,055 acres (or 1,065 acres cum the additional
plot). The acquisition would likely mark WCT’s closest development to the
Golden Triangle in KL (prior presence
via the Paradigm in PJ, Bandar Bukit Tinggi, Klang as well as a sizeable
468-acre plot in Rawang, Selangor). This move
reaffirms our belief that WCT would likely enlarge its property development footprint going forward as part of its three-pronged approach
on construction works, as well as property development and management.
RM804m cash hoard
may come in handy. We see no issues
with WCT’s financing for the proposed acquisition given its cash pile of over
RM800m as of Dec 2011, and its net gearing of 0.42x. Assuming an all-cash
deal at the maximum sum of RM515m (cum the additional plot at RM65m),
we expect its net gearing to close FY12 at a relatively unchanged 0.41x owing
to its strong cash flow generation. Note that the group’s bond covenant allows
a net gearing of up to 1.75x.
Mixed development
likely. From our brief checks on
iProperty.com, Jalan Awan Cina mainly comprises medium-end condominiums
named O.G. Heights, which are selling for RM350 per sq ft in the secondary
market, as well as some detached bungalows going for RM2m-RM5m each. Taman Yarl itself is primarily a mixed
residential development comprising mass market apartments, terrace houses, as
well as semi- and fully detached residences.
Judging from this mix as the
proposed land usage, we believe WCT would likely look at a mixed medium to high
end condominiums development, with some potential commercial units
given the lack of commercial lots, family malls as well as hotels in the
said area. Management confirmed that the group is looking at a target GDV of
RM4bn over a period of 8 to 10 years, with first launch targeted by 2014 should
the acquisition be completed on time.
BUY. All in, we
deem the acquisition reasonably priced and are encouraged by WCT’s move to
further expand its property development footprint via
its maiden venture into Kuala
Lumpur. No changes to our earnings model
at this juncture. Maintain BUY, at an unchanged
FV of RM3.17, based on 14x FY12 PER.
Source: OSK188
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