WCT eyes water concessions, expanding retail portfolio

KUALA LUMPUR: Construction outfit WCT Bhd is eyeing water concessions, and looking to expand its existing retail and hotel portfolio, to grow its recurring income asset base, over the next five years.

WCT’s managing director Taing Kim Hwa said the plan was in line with the company’s expansion in Middle Eastern markets such as Oman and Saudi Arabia, besides fast-growing Southeast Asian economies such as Vietnam.

“We are keen on water-related businesses,” Taing told The Edge Financial Daily via a telephone conversation yesterday, but declined to elaborate.

He, however, indicated that the company was looking at equal contributions from its business segments, including the construction and property development divisions, and the asset investment and management unit, which controls the company’s retail and hotel entities.

Last Friday, WCT hogged the limelight when it announced the securing of a RM486 million project from Malaysia Airports Holdings Bhd (MAHB), to build and maintain an integrated complex, within the new low-cost carrier terminal in Sepang.

The project is slated to be undertaken on a build, operate and transfer (BOT) basis, under a 25-year extendable concession.  

Under the plan, WCT and MAHB will set up a special-purpose vehicle (SPV) to undertake the concession, based on a 70% and 30% equity split. The SPV will finance the project via a mix of internally generated funds and bank borrowings.

The project is slated for completion in June 2012. The salient features of the integrated complex include the construction of a transportation hub for taxis and buses, and the development of a mall dubbed the “Landside Mall”, with a net lettable area of some 437,000 sq ft, and some 6,000 parking bays.

Under the concession, the SPV will collect rental, parking fees and transport charges for buses and taxies and upon expiry of the concession, the complex will be sold back to MAHB at a price to be determined by an independent consultant.

“This is WCT’s first concession in Malaysia,” Taing said.

He added that that this maiden project could generate an internal rate of return (IRR) of 10%.

OSK Research Sdn Bhd analyst Jeremy Goh, who is mulling an upgrade of WCT’s stock, said the research house might raise its forecast and target price pending a meeting with the builder next week.

“For now, our earnings remain unchanged as job wins year-to-date of RM720 million are still within our replenishment target of RM2 billion,” Goh said.

OSK has a neutral call on WCT shares with an unchanged fair value of RM2.89.

According to OSK, WCT has guided for a 5% profit before tax margin for the construction of the complex.

Meanwhile, TA Securities expects the project to generate a higher IRR of about 14%. The projection assumes a concession period of 25 years besides an average monthly shopping mall rental of RM35 per sq ft with periodic increments. The research house has also taken into account an average parking fee rate of RM2.50 an hour and an utilisation rate of 50% of the 6,000 parking bays.

“This project would also provide an avenue for WCT to have consistent annual recurring income that would smoothen out probable lumpy income streams in the future,” said TA, which maintained its target price of RM3.76 for WCT shares with a buy call.

WCT has established a recurrent income base
At present, WCT co-owns three highway concessions in India. These include the RM258 million Durgapur Expressway and RM219 million Panagarh-Palsit Expressway undertaken in collaboration with Gamuda Bhd in West Bengal, India. The joint venture between Gamuda and WCT is on a 70% and 30% basis.

WCT also holds a 21.6% equity stake in an India-based toll concession company Swarna Tollway Pte Ltd, which has a 30-year concession for a 157.8km highway in Andhra Pradesh.

In Malaysia, among WCT’s real estate assets include the AEON Bukit Tinggi Shopping Centre in Klang, The Paradigm, a project located along the Damansara Puchong Highway, which has yet to be opened.

WCT is also the owner of the Première Hotel, which forms a part of the overall master development plan for the Bandar Bukit Tinggi 1, its real estate project in Klang.

Meanwhile in Vietnam’s Ho Chi Minh City, WCT is the builder and owner of the Platinum Plaza Development Project, a mixed job including a four-star hotel, and offices, besides retail and residential entities.

In line with the better outlook, WCT’s stock gained as much as 11 sen or 3.4% to RM3.31 yesterday, the highest in over two years, before easing off to close at RM3.25. A total of 13.83 million shares changed hands yesterday.

This article appeared in The Edge Financial Daily, October 12, 2010.

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