WCT - Upsizing Landbank

  BUYFAIR VALUE: MYR3.36

THE BUZZ

WCT announced that its wholly-owned subsidiary, WCT Hartanah Jaya, has entered into a conditional sale and purchase agreement with Malaysia Building Society’s (MBSB) fully-owned subsidiary, Idaman Usahamas, to acquire a piece of commercial land with a shopping mall in Johor Bahru for a purchase consideration of RM180m.

OUR TAKE

Details of the land. The said piece of land along Jalan Skudai in Johor Bahru measuring 12.4 acres is held under freehold title. Currently, it houses an abandoned shopping mall comprising a four-level retail podium block and two levels of car parks above it.According to MBSB’s announcement on Bursa, the disposal of the said property was implemented through public tender at a reserve price of RM160m, being the market value ascribed by Messrs Jordan Lee & Jaafar.

Growing its landbank. The announcement was a positive surprise as WCT continues to shore up its landbank. This acquisition will boost its landbank to approximately 1,040 acres, following the proposed and recently-approved RM450m acquisition of 57.6 acres along Jalan Awan Cina in Taman Yarl. Prior to this, WCT’s presence in Johor was mainly focused on Iskandar Malaysia, with a remaining landbank of about 16 acres in the area.

Funding not an issue. As of 2QFY12, the company had a cash balance of RM893m and total borrowings of RM1.58bn, implying a net gearing of 0.44x. In early August, the group proposed to issue medium term notes (MTNs) of up to RM600m, which we believe would be partly utilised to pay for the latest acquisition as well as the proposed RM450m offer for the land in Taman Yarl. Assuming that the MTNs are fully utilised, WCT’s net gearing would balloon to 0.83x, which we still deem manageable although it would have to bear higher financing costs in the near term.

Proposed GDV of RM900m. WCT is looking at a mixed development on the said piece of land with an estimated GDV of approximately RM900m. The existing shopping mall will be retained with a target NLA of 770k sq ft, while an additional two towers consisting of hotel and serviced apartments will be built. While it is too early to gauge the potential recurring earnings for its property management division, we believe the project will likely be a success given that it is 10km from Johor Bahru’s city center, 8km from the North-South Expressway as well as a decent 15km from Medini Iskandar Malaysia.

BUY. All in all, we are positive on this latest proposed acquisition as WCT continues to boost its landbank to further diversify its focus from the core construction business. Management reiterated its target to grow its property development and management division to contribute 55% of the group’s consolidated EBIT by 2016 from 36% currently. There are no changes to our earnings model at this juncture. Maintain BUY, at an unchanged FV of RM3.36, based on a 12x FY13 PE.

Source: OSK