We recently visited WCT’s next property investment project
in KLIA, Gateway@KLIA2 (“the Project”) and are positive with its prospects as
the Project will benefit from the potentially strong traffic at the upcoming
KLIA2 terminal (‘the Terminal”). To recap, KLIA2 is a dedicated airline
terminal for AirAsia and other Low Cost Carrier (LCC) operators. KLIA2 is
designed to handle up to 45m passenger traffic per annum. In 2011, AirAsia
carried about 18m passengers and based on our in-house forecast, the passenger
traffic from AirAsia could reach up to 20m and 22m in 2012 and 2013
respectively. All these bode well for WCT and MAHB (OP, TP: RM6.50) as the
former operate at the commercial area of the Project while the latter manages
the whole Terminal. We believe that the Project’s potential is still not seen
by investors yet at this juncture. This could be due to the ongoing issues and debates
between MAHB and AirAsia, which could put the project’s viability at risk.
Nonetheless, the fundamentals remain intact as AirAsia will be the main tenant
to occupy KLIA2. Going forward, we see Gateway@KLIA2 to be one of the next key
rerating catalysts for WCT’s share price apart from others such as the company
likely securing more construction projects in the near term. We are maintaining
our OUTPERFORM recommendation with the unchanged Target Price of RM3.92 based
on SOP valuation. We value The Gateway@KLIA2 at RM0.85 per share in our SOP calculation
above.
Construction on
track. As at July 2012, the construction of the Project has reached the 72%
completion stage with full completion scheduled to be by 31 March 2013. There
was a slight delay in the M&E works at the parking bays by 30 days.
However, management said that delay is relatively minor and it will not derail
the completion date.
Take-up rate
expectations. SASB have appointed DTZ Nawawi Tie Leung (“DTZ”) to market
and manage its commercial areas including the tenders filtering process and
tenants selection. Thus far, DTZ has successfully gathered 25 tenants and 15 of
them are expected to sign the tenancy agreement in the near term. At the
terminal, MAHB has successfully tendered 30% of its commercial plots and
received an overwhelming response and interest from existing and new retailers.
We expect that there will be a spill-over of the demand to Gateway@KLIA2.
Potential upside on
earnings. We have factored in the contribution from Gateway@KLIA2 in our
forecasts and SOP valuation for WCT. Since SASB is a jointly controlled entity,
WCT will not consolidate SASB’s account but equity account as contribution from
associate. Based on our estimate, we expect the Project to contribute 1% to
WCT’s pre-tax profit in FY13 and significantly increasing by 181% thereafter
until FY16. We expect the earnings growth to normalise from FY16 onwards at 4%
to 5% per annum.
Risks.
Nonetheless, there are two key operating risks for the Project i.e. (1) its
traffic is highly dependent on AirAsia’s passenger traffic and growth (2) a lag
effect on rental rate growth as SASB has agreed that rental rates in Gateway@KLIA2
will be capped at “one-notch” lower than KLIA2 rental rates at all time.
Maintain OUTPERFORM and Target Price at RM3.92 based on SOP.
We are maintain our OUTPERFORM rating on WCT with the unchanged Target Price of
RM3.92 based on SOP valuation.
Source: Kenanga
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