No material impact on WCT from TRX land acquisition
KUCHING: WCT Holdings Bhd’s (WCT) acquisition of a land in Tun Razak Exchange (TRX) will have minimal earnings impact on WCT in the near term, analysts say, as earnings from the land may start to kick in only from the financial year 2020 (FY20) onwards.
MIDF Amanah Investment Bank Bhd’s research team ( MIDF Research) yesterday noted that WCT, together with a Chinese partner, China Communications and Construction Group (CCCG), will jointly develop the first residential project at the Tun Razak Exchange (TRX).
Upon completion, the project is expected to carry an estimated gross development value ( GDV) of RM1.1 billion.
According to MIDF Research, the plan to develop high- end service apartments came following WCT Precious Development’s (WCTPD, a wholly owned subsidiary of WCT Land) acquisition of TRX land which measures 1.65 acres.
It said, the company entered into an SPA with KLIFD Sdn Bhd (a unit of 1MDB) for a purchase of land worth RM223 million or RM3,100psf back in October 2015. Based on its channel check, the purchase price was lower in comparison with previous deals, with price tag averaged at RM4,595 psf in 2018.
“We do not expect material earnings impact from the land acquisition in the nearterm as earnings may start to kick in only from FY20 onwards. Hence, we maintain our earnings forecast for FY19. Nonetheless, we are looking to introduce our FY20 numbers in the upcoming results,” the research team opined.
It further noted that a JV company, CORE Precious will spearhead the project on the basis 80: 20 in equity between CCCG and WCT.
“As the project owner, its plan is to develop two serviced apartment towers, with completion scheduled around the end of 2022. At this juncture, we noted that CORE Precious is in the midst of tendering the project to main contractor,” it added.
It also pointed out that the residential towers are strategically located in the TRX City, which would likely appeal to the financial professional and expatriates whose office is based in the city.
“Core Precios, the project owner is planning to build 700 residential units on the land alongside meditation decks, gyms, various gardens and pools. The project GDV is estimate at RM1.1 billion, translating into average selling price per unit of RM1.57 million,” it projected.
Following the purchase of 80 per cent stake in WCTPD by Chinese partners (namely CORE SPV and CCCC), the land in entirety was valued at RM250 million, the research team noted.
“The majority stake by CCCC will allow the entity to drive the development, as well as financing and marketing of the project. On the other hand, the divestment exercise by WCT will enable the group to reduce the capital commitments on land banking and property development,” MIDF Research said.
All in, the research team maintained a ‘ buy’ call on the stock with a target price of RM1.05 per share, pegging its FY19EPS to PE of 13-folds.
“It is notable that WCT is trading at price-to-book ratio (PBR) of 0.33folds, an attractive level for entry,” it added.