Stock Name: WCT
Company Name: WCT BHD
Company Name: WCT BHD
| Research House: OSK | Price Call: BUY | Target Price: 3.17 |
THE BUZZ
WCT announced that its wholly-owned subsidiary, Iris GreenSB, has entered into a conditional share sale agreement with Eng LianEnterprise SB, Shen & Sons SB and AMC SB, for the acquisition of theentire equity interest in Timor Barat Properties SB for a total cashconsideration of RM450m. Timor Barat owns 3 parcels of land along Jalan AwanCina, Taman Yarl with totaling 57.6 acres.
OUR TAKE
Reasonably priced. We found from Google Map that Jalan Awan Cina is some 12-15kmsouth-west from the Golden Triangle area. Accessibility to the city center isfairly decent through Old Klang road or the KESAS and MEX highways. Based oninformation provided by jpph.info, anunofficial proxy to the Property andValuation Services Department of Malaysia displaying transacted property pricesin Malaysia, the last transacted landprice in a similar area was going at an average of RM130 per sq ft in Nov 2010. Based on WCT's offer ofRM450m, this translates into approximately RM180 per sq ft, which we deem areasonable premium given the significant size of the plots involved.
Pending conversion ofland use. The acquisition offer is conditional upon conversion of land useon 2 of the 3 plots involved from nil to buildings with the conversion premiumof 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 plotpossible. Meanwhile, WCT has also secured an option to purchase an additionalplot of land contiguous to one of the 3 plots involved should the alienation ofthe said parcel to Timor Barat take place before the acquisition is completed.Timor Barat had on 16 June 2011 submitted an application to Dewan BandarayaKuala Lumpur (DBKL) for the alienation of the said parcel of land contiguous toLand 3 as shown in Figure 2. The approval of the said application is stillpending. Although not disclosed in its Bursa announcement, we understand thatthe said plot is approximately 10 acres. Based on the agreed pricing of RM150 per sq ft if freehold or RM135 per sqft if leasehold, this could translate into an additional RM59m-RM65m on top ofWCT's existing offer of RM450m for the 3 existing plots.
Outstanding landbankto break 1,000-acre mark. Should the acquisition be completed, WCT'soutstanding landbank could hit 1,055 acres (or 1,065 acres cum the additionalplot). The acquisition would likely mark WCT's closest development to theGolden Triangle in KL (prior presence via the Paradigm in PJ, Bandar Bukit Tinggi, Klang as well as a sizeable468-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 approachon construction works, as well as property development and management.
RM804m cash hoardmay come in handy. We see no issueswith WCT's financing for the proposed acquisition given its cash pile of overRM800m as of Dec 2011, and its net gearing of 0.42x. Assuming an all-cashdeal 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 owingto its strong cash flow generation. Note that the group's bond covenant allowsa net gearing of up to 1.75x.
Mixed developmentlikely. From our brief checks on iProperty.com, Jalan Awan Cina mainly comprises medium-end condominiumsnamed O.G. Heights, which are selling for RM350 per sq ft in the secondarymarket, as well as some detached bungalows going for RM2m-RM5m each. Taman Yarl itself is primarily a mixedresidential development comprising mass market apartments, terrace houses, aswell as semi- and fully detached residences. Judging from this mix as theproposed land usage, we believe WCT would likely look at a mixed medium to highend condominiums development, with some potential commercial units given the lack of commercial lots, family malls as well as hotels in thesaid area. Management confirmed that the group is looking at a target GDV ofRM4bn over a period of 8 to 10 years, with first launch targeted by 2014 shouldthe acquisition be completed on time.
BUY. All in, wedeem the acquisition reasonably priced and are encouraged by WCT's move tofurther expand its property development footprint via its maiden venture into KualaLumpur. No changes to our earnings modelat this juncture. Maintain BUY, at an unchangedFV of RM3.17, based on 14x FY12 PER.
Source: OSK188
No comments:
Post a Comment