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WCT confident of Vietnam ventures

KUALA LUMPUR (Jan 27): Despite the lingering economic uncertainty in Vietnam, construction firm WCT Bhd is confident of the long-term prospects of its property venture in the third most populated Southeast Asian nation.

The company sees Vietnam as part of its long-term growth plan and will continue to seek business opportunities in that country, said its CEO of China and Vietnam operations Datuk Teo Tong Kooi.

"We are fully aware of the challenges... at the moment but we are in Vietnam for the long term as proven by our presence in the Middle East since 2002," he told The Edge Financial Daily.

"Although we have been informed that the high borrowing costs and inflation rates [in Vietnam] have more or less stabilised over the past few months, we are still taking a very cautious approach to our investments in Vietnam," Teo said.

WCT, via its wholly owned subsidiary WCT (S) Pte Ltd, was awarded an investment certificate (IC) by the Vietnamese government on Dec 24 last year  to undertake a residential and commercial mixed development on a 4.7ha tract in Binh Hung Commune, Ho Chi Minh City.

According to the announcement to Bursa Malaysia, it will be a 70:30 joint venture (JV) project between WCT and the Vietnamese government's Southern Land Corp. The project has a plot ratio of six and is earmarked for commercial shoplots and condominium units complete with a garden and full-fledged facilities.

"The estimated gross development value (GDV) is RM700 million," Teo said. "We have started land clearing and land filling. Due to the current economic outlook and rather weak property sentiment in Vietnam, the JV partners have agreed to defer the official launch to a later date to be decided."

This marks WCT's second property venture in Vietnam. The company, via a 67:33 JV called BSC-WCT Co Ltd with another local partner Minh Thien Construction and Trading Co Ltd, in 2008 obtained the IC to undertake a commercial and retail development named Platinum Plaza. However, the RM1 billion project has yet to contribute to WCT's revenue.

"We do not expect any financial contribution from this project for this financial year [ending Dec 31, 2012]," Teo said.

"We can only officially launch the Platinum Plaza project once the local authorities have resolved the land settlement and terms which our JV partner has proposed to amend, which are still pending approval. Hence, there will be further delay in the official launch of this project," he said.

Teo said there is no urgency to expedite the projects until WCT sees further improvement in the local economy. "The demographics of Vietnam will eventually create an appealing business environment," he said.

While WCT fell short of meeting its RM2 billion construction job wins target last year with just RM187 million jobs secured, its property division has been doing relatively well despite the current global economic uncertainty.

According to a research report from Maybank Investment Bank, WCT's property development sales for the nine-month period ended Sept 30, 2011 (9MFY11) was RM398 million, which was just RM2 million away from its RM400 million internal target for 2011.

The strong demand came from both its property projects in Klang, Selangor, and Sabah. The company recently launched the RM700 million 1-Medini residential project in Iskandar Malaysia, Johor, and is slated to open the Paradigm shopping mall this year.

Analysts are still upbeat on WCT despite a lack of new large-scale projects in the pipeline. According to Bloomberg data, 15 out of the 20 analysts who cover the company had a "buy" recommendation.

The consensus target price on the stock is RM2.91, according to Bloomberg data. This is 26.5% or 61 sen higher than last Friday's closing price of RM2.30, which gave the company a market capitalisation of some RM1.9 billion.

According to Maybank IB Research, WCT is currently tendering for some RM4 billion jobs, of which about 75% is for infrastructure projects in Oman and the balance is domestic jobs. The company currently has an order book with a value of near RM3 billion, which would keep the company busy until 2013, it added.

For 9MFY11, WCT posted a 15.3% increase in net profit to RM114.5 million from RM99.3 million the same period a year earlier, mainly due to higher contribution from its civil engineering and construction division.

Revenue dropped 17% to RM1.05 billion in 9MFY11 from RM1.27 billion a year ago. Earnings per share rose to 14.29 sen from 12.61 sen previously.

The property development and property investment and management divisions made up some 40.6% or RM79.7 million of its total operating profit of RM196.2 million (excluding elimination of intra-group profit) in 9MFY11, up from a contribution of 37.5% the same period a year ago. The balance was contributed by its civil engineering and construction businesses.

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