WCT to get RM10m annual boost from [email protected]

KUALA LUMPUR: WCT Holdings Bhd’s property investment and management division is expected to get at least a RM10 million boost in net profit per year from the opening of [email protected], the retail section of the new low-cost carrier terminal in Sepang.

WCT head of corporate and finance Chong Kian Fah said the additional contribution will help the group meet its target for its property investment and management division, under which its mall operations fall, to increase its contribution to 25% of WCT’s net profit by 2015 from 10% currently.

However, this would see contributions from its construction division dropping slightly from 55% to 45% and property development from 35% to 30% contribution to its net profit.

“Our future is pretty much on the property investment and management business,” Chong told The Edge Financial Daily recently.

The take-up rate for [email protected] has been strong at 80%, averaging RM23 per sq ft, since klia2 opened on May 2, he said.

[email protected] is WCT’s third retail project, spanning 350,000 sq ft, and is part of the long-term concession with Malaysia Airports Holdings Bhd.

Together, [email protected], AEON Bukit Tinggi Shopping Centre in Klang and Paradigm Mall in Petaling Jaya are expected to provide WCT with some RM30 million to RM45 million in net profit from this year.

“In terms of net profit, we are targeting every mall to give us RM10 million to RM15 million. Over time this will grow … By enhancing our occupancy rates and achieving RM20 million per mall over time, this will provide us with [a combined] RM60 million of recurring income per year,” said Chong.

However, in a report dated May 5, RHB Research Institute Sdn Bhd believes that [email protected] remains a long-term story for WCT.

“As we had expected, WCT’s latest shopping mall measuring 350,000 sq ft did not live up to be a rerating catalyst to the group’s share price on its official opening on May 2.

“We project for WCT to account for a share of loss amounting to RM5 million from this 70% owned entity in its financial year ending Dec 31, 2014 (FY14) due to start-up costs before it is expected to break even in FY15,” said the research firm. It is maintaining a “neutral” call on WCT with a target price of RM2.23.

For its first quarter (1Q) ended March 31, WCT’s net profit dropped 7% to RM40.1 million from RM43.18 million a year ago, on lower profit from its construction and property development segments. Revenue also fell 5% to RM467.22 million from RM490.95 million, while basic earnings per share for 1QFY14 was lower at 3.67 sen compared with 4.25 sen a year ago.

Profit from property investment and management operations was still small at RM6.77 million or 10%, compared with the construction segment’s RM36.71 million (55%) and property development segment’s RM23.76 million (35%).

According to Chong, WCT’s construction order book remains “sufficient” at RM2 billion, and it will attempt to replenish its order book in the coming years.

On its property development segment, Chong said although WCT is targeting sales of RM1.2 billion for FY14, it is unlikely to hit that target unless sales in the second half of this year are “extraordinarily strong”, due to poorer demand as a result of property cooling measures.  

“However, we do expect demand to pick up in the second half, especially prior to the implementation of the goods and services tax,” he said, adding that the majority of countries that implemented the consumption tax had experienced a small property boom.

“We have no expectations, but last year [we recorded revenue of] about RM700 million [from the property development division], so we could make RM700 million to RM800 million or close to RM1 billion, if things pick up in the second half,” he said.

This article first appeared in The Edge Financial Daily, on June 2, 2014.


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