WCT in 2nd property venture in Vietnam

WCT Bhd (Dec 28, RM2.32)
Maintain market perform at RM2.30 with fair value of RM2.08:
Via a 70:30 joint venture with local partner Southern Land Corp, WCT has obtained an investment certificate (IC) from the Vietnamese government to undertake a residential and commercial development on a 4.7ha parcel of land in Binh Hung Commune, Binh Chanh District, Ho Chi Minh City.

We estimate WCT's latest property venture under WCT-DPN Co Ltd will have a gross development value of about RM500 million, taking a cue from the RM1 billion GDV of the first venture, which is about twice the size in terms of land area.

In January 2008, WCT, via a 67:33 JV called BSC-WCT Co Ltd with another local partner Minh Thien Construction and Trading Co Ltd, obtained the IC to undertake a commercial and retail development called Platinum Plaza on a 9ha tract also in Binh Hung Commune.

We are at best only mildly positive on WCT's latest development given the expected long gestation period (the Platinum Plaza project has yet to get off the ground after four years). Not helping either, is the lingering economic uncertainty in Vietnam. Of course, the counter argument is the economic uncertainty in Vietnam could have strengthened WCT's bargaining position with the local partner.

We maintain our forecasts as we do not expect any contribution from the new project within our forecast period.

Risks to our view include: (i) new contracts secured in FY11 to FY13 ending December coming in below our target of RM1.5 billion per year; and (ii) escalation in input costs.

We have turned less enthusiastic on construction stocks as we believe their share price performance is likely to be muted over the next three to six months as: (i) investor confidence and comfort level that the Klang Valley MRT project will start work soon are being chipped away by further delays in the rollout of certain already long overdue large-scale projects; (ii) even if the Klang Valley MRT project is to start work as scheduled, initial progress is likely to be painfully slow due to bureaucratic hurdles, which means realistically, earnings impact from the Klang Valley MRT may be a few quarters, or even a year or two away; and (iii) there is generally a lack of credible new large-scale projects in the pipeline. Indicative fair value for WCT is RM2.08 based on 12 times fully-diluted FY12 earnings per share of 17.3 sen, in line with our benchmark one-year forward target price-earnings ratio of eight to 12 times for the construction sector. — RHB Research, Dec 28

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