Wednesday, October 28, 2009

WCT (RM2.68), Iskandar to develop RM600m condos

WCT Bhd and Iskandar Investment Bhd will jointly develop and co-own the 4.4-hectare 1Medini residential project inMedini Iskandar, Johor with a gross development value (GDV) of RM600 million. The project will be developed by One Medini Sdn Bhd, a 70:30 per cent joint venture between WCT's subsidiary, WCT Land Sdn Bhd and Medini Land Sdn Bhd, a subsidiary of Iskandar Investment.

WCT chairman Datuk Captain Ahmad Sufian attributed the involvement of the company in the 1Medini project as a bonus because WCT had already awarded RM766 million worth of infrastructure works in Medini Iskandar in July this year, where works are expected to be completed by July 2011.

"We are proud indeed to be given this golden opportunity to make our first foray into the Iskandar Malaysia via the Medini Iskandar project and hope to expand our investment here," he told reporters after the signing of shareholder agreement for the development of 1Medini residence between WCT Land and MediniLand, in Putrajaya today. Ahmad said the WCT also wanted to further grow its business in Malaysia and would continue to bid for any projects locally as well as international.

Its order book currently stands at RM3.5 billion. In 2008, local operations contributed 40 per cent to the group's revenue while the balance of 60 per cent came from the overseas market. The construction and property development company currently has presence in United Arab Emirates, Qatar, Bahrain, Oman, India and Vietnam. Scheduled to be fully completed by 2015, the 1,332 units of condominiums in1Medini would include a 68,800 square feet commercial area for local retail businesses.

Priced at RM350 per square feet, the first phase of the condominium is expected to be launched in early 2012. Iskandar Investment president and chief executive officer, Arlida Ariff, meanwhile, said the strategic partnership with WCT in 1Medini project would help to meet the increasing demand for quality homes as well as to attract talented global citizens to live, work and play in Iskandar Malaysia.

There has been interest from both Indonesians and Singaporeans, she said. According to the Iskandar Regional Development Authority (IRDA), Iskandar Malaysia has over RM47 billion in committed funds from the government bodies and international investors to date.


Commentary: WCT's 70% stake in the RM600mil project would amount to RM420mil, not a significant amount to its overall property development compared to its Paradigm project in Kelana Jaya (RM1.4bil, currently under construction), Platinum in Vietnam (RM2bil - construction schedule unknown, not so soon) and existing residential projects (outstanding GDV of RM2.1bil). The project will be launched in mid-2010 while construction will start in mid-2010 and expected to complete by 2015.

By simple calculation, assuming 8-year horizon over its sales, 20% net margins, probably can add RM10mil net profit to its earnings per year starting mid-2010. Situated close to Legoland in Medini North, Newcastle University Medical Malaysia, Kota Iskandar and Iskandar Financial District, the properties most likely will enjoy good take up rates. There are many who take a cautious stance over the likelihood of success of Iskandar Corridor (including me) in view of Malaysia's poor records of launching corridors successfully (Proton City, Putrajaya/Cyberjaya, MSC etc).

Nonetheless, so far property developers like SP Setia, Berinda (A unit of Kuok Group) indicated that they're enjoying good take up rates from Iskandar projects with buyers coming from China, Singapore & Malaysia (Ok, give the benefit of doubt on Iskandar's success). This is WCT's first foray into Iskandar's property development and most probably won't be the last. Earlier, WCT was awarded RM766mil worth of infrastructure works.

WCT's current orderbook is at RM2.8bil (Excluding Paradigm Project works of RM733mil as it's inter-segment sales) which will last the company 2 years. WCT is currently eyeing for a few jobs in Middle East (Total project bids of about RM3.2bil), Vietnam and Malaysia (LCCT - RM2bil, Sabah water infrastructure works - >RM1bil, hospital jobs - RM200mil). Thus far, WCT orderbook replenishment has been impressive at RM1.4bil YTD, exceeding its forecast of RM1bil which further indicates WCT's strong ability to secure projects.

At a discount to its peers: Assuming orderbook replenishment of RM1.9bil and RM2bil for FY2009 and FY2010, its revenue and net profit for FY2010 should be in the range of RM2.4bil and RM170mil respectively. EPS for 2010 would be at 22.1 sen. PER 2010 is at 12x, which is a huge discount compared to Gamuda & IJM (about 20x). By attaching PER of 15x, share price should move to RM3.30. Price triggers including news of job wins and recognition of its additional works worth RM740mil for NDIA (New Doha International Airport) which will restore its margins (Earlier NDIA was a low margin job owing to unrecognized additional works).

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

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