WCT gain­ing trac­tion

Shares re­bound as mar­ket re­acts pos­i­tively to its Subang Sky­park buy

The Star Malaysia - StarBiz - - Companies & Strategies - By EU­GENE MAHALINGAM eu­genicz@thes­tar.com.my

SHARES of WCT Hold­ings Bhd have fi­nally been gain­ing trac­tion of late, fol­low­ing news of its stake ac­qui­si­tion in Subang Sky­park Sdn Bhd ear­lier this month.

When WCT an­nounced the move last Mon­day, how­ever, the com­pany’s shares still con­tin­ued to slide – hit­ting a two-year low of RM1.14 last Fri­day.

This week, how­ever, saw its shares re­bound­ing by about 7% – per­haps a de­layed re­ac­tion that things are in­deed start­ing to look up for WCT.

An­a­lysts say the 60% ac­qui­si­tion of Subang Sky­park is ex­pected to gen­er­ate long-term earn­ings ben­e­fits for WCT, which has busi­nesses in the prop­erty and con­struc­tion sec­tors.

Ke­nanga Re­search in a re­cent re­port em­pha­sised that it is not chang­ing WCT’s 2018 and 2019 core earn­ings es­ti­mate, as it does not ex­pect any ma­jor de­vel­op­ment in Subang Sky­park in the near term.

“We are long-term pos­i­tive on WCT’s move in ac­quir­ing 60% stake in Subang Sky­park, given that it owns ap­prox­i­mately 12.7 acres of land ad­join­ing the main ter­mi­nal – slated to be de­vel­oped into a mix com­mer­cial hub in the fu­ture.”

On a land ac­qui­si­tion per­spec­tive based on the 12.7 acres land ad­join­ing the ter­mi­nal, Ke­nanga Re­search says the ac­qui­si­tion price of RM44.6mil on its 60% stake in Subang Sky­park would trans­late to a land cost of RM134.6 per sq ft – ex­clud­ing other fa­cil­i­ties.

“We be­lieve this to be fair de­spite be­ing priced at a premium as com­pared to Sun­way Prop­erty’s aver­age cost of RM118.3 per sq ft when they ac­quired three parcels of in­dus­trial land in Kam­pung Subang in 2016.”

Subang Sky­park is in­volved in the de­vel­op­ment of com­mer­cial re­tail area at the Sul­tan Ab­dul Aziz Shah Air­port in Subang, known as Subang Sky­park Ter­mi­nal 3.

In an­nounc­ing the stake-pur­chase last week, WCT said the ac­qui­si­tion would en­able the com- pany to in­vest in Subang Sky­park – which has the po­ten­tial for value en­hance­ment as well as for de­vel­op­ment of the car park area into a mixed com­mer­cial project.

The move, WCT says, would also al­low the com­pany to di­ver­sify into the ground han­dling for pri­vate avi­a­tion busi­ness as well as hangarage ser­vices.

“Th­ese busi­nesses are com­ple­men­tary to the ex­ist­ing re­tail op­er­a­tions at Ter­mi­nal 3.”

The pur­chase price took into con­sid­er­a­tion the unau­dited net-as­set value of Subang Sky­park Group as at June 30, 2017 and its fu­ture prospects.

There are cur­rently a num­ber of com­mer­cial and pri­vate air­lines fly­ing out of Subang air­port, in­clud­ing FlyFire­fly Sdn Bhd, Malindo Air­ways Sdn Bhd, Ber­jaya Air and Vis­taJet.

Re­cently, it was re­ported that a rail link be­tween KL Sen­tral and the air­port will start oper­a­tion in May.

WCT has an es­tab­lished track record in the air­port re­tail busi­ness, be­ing the de­vel­oper and con­ces­sion holder of the shop­ping mall known as Gate­way@KLIA2, which in­cludes a trans­porta­tion hub.

RHB Re­search In­sti­tute says the ac­qui­si­tion will un­lock the po­ten­tial value for WCT.

“We gather from man­age­ment that the re­tail com­po­nent, Subang Sky­park Ter­mi­nal 3, con­sists of 100,000 sq ft of net let­table area (NLA) and is cur­rently 90% oc­cu­pied. WCT in­tends to en­hance the busi­ness, lever­ag­ing on its ex­per­tise in op­er­at­ing air­port re­tail com­po­nents, through its ex­pe­ri­ence of run­ning its 70%-owned Gate­way@ KLIA2.

“With an NLA of 360,000 sq ft, this is more than three times that of Subang Sky­park Ter­mi­nal 3.”

The re­search house says fur­ther un­tapped value could lie in the park­ing lot lo­cated op­po­site Subang Sky­park Ter­mi­nal 3.

“Span­ning ap­prox­i­mately 11 acres, it could be de­vel­oped into a mixed de­vel­op­ment con­sist­ing of re­tail and hos­pi­tal­ity com­po­nents. Subang Air­port saw 2.8 mil­lion pas­sen­gers pass through its gates in 2016, mak­ing it the sixth busiest air­port in Malaysia be­hind KLIA as well as Pe­nang, Kota Kin­a­balu and Kuching in­ter­na­tional air­ports.

“Mean­while, Subang is a hub for both the aero­space in­dus­try and pri­vate jet op­er­a­tions, with nu­mer­ous com­pa­nies op­er­at­ing within the vicin­ity. In terms of con­nec­tiv­ity, a KTM Ko­muter sta­tion is lo­cated in front of Subang Sky­park Ter­mi­nal 3.”

Sep­a­rately, Hong Leong In­vest­ment Bank Re­search says the im­pact of the ac­qui­si­tion to net gear­ing is ex­pected to be min­i­mal for WCT – in­creas­ing from 88% (in the fourth quar­ter of 2017) to 89%.

“Our earn­ings fore­cast are un­changed as we await fur­ther de­tails on the pro­posed de­vel­op­ment plans.”

The re­search house is, how­ever, scal­ing back its tar­get price to RM1.81 from RM2.27 pre­vi­ously by im­ple­ment­ing a 20% dis­count to its sum-of-parts val­u­a­tion.

“This is to ac­count for the po­ten­tial de­lays in some of its de-gear­ing ini­tia­tives, such as real es­tate in­vest­ment trusts and sig­nif­i­cant land sales. WCT re­mains backed by sig­nif­i­cant sur­plus land value of RM1.6bil (RM1.16 per share).”

Ke­nanga Re­search adds that WCT’s out­stand­ing or­der­book cur­rently stands at around RM5.6bil – which will pro­vide earn­ings vis­i­bil­ity for the next 2½ to three years.

“As for its prop­erty di­vi­sion, its un­billed sales stands at RM230mil, with less than one-year vis­i­bil­ity, and man­age­ment in­tends to con­tinue with their re-pric­ing strat­egy to clear its ex­ist­ing in­ven­to­ries amount­ing to RM550mil in gross de­vel­op­ment prod­uct.”

Mean­while, AmIn­vest­ment Bank Re­search says it is “at best only neu­tral” on WCT’s lat­est ac­qui­si­tion.

“While we see value in the com­mer­cial/re­tail area in Subang Sky­park Ter­mi­nal 3 that may be poised for pos­i­tive rental re­ver­sion backed by ris­ing pas­sen­ger traf­fic, and the car park area with de­vel­op­ment po­ten­tial, th­ese may take time to re­alise.

“On the other hand, the ac­qui­si­tion cost cou­pled with the con­sol­i­da­tion of Subang Sky­park’s debt will add fur­ther strain on WCT’s bal­ance sheet.”

The re­search house es­ti­mates that the ac­qui­si­tion will in­crease WCT’s net debt and gear­ing of RM2.76bil and 0.88 times as at end-De­cem­ber 2017, to RM2.88bil and 0.92 times re­spec­tively.

Im­por­tant fa­cil­ity: An air­craft be­ing towed at Subang Sky­park. There are a num­ber of com­mer­cial and pri­vate air­lines fly­ing out of Subang air­port in­clud­ing FlyFire­fly Sdn Bhd, Malindo Air­ways Sdn Bhd, Ber­jaya Air and Vis­taJet.

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