WCT Bhd (Oct 21, RM2.38)
Maintain market perform at RM2.33 with fair value of RM2.08: WCT is acquiring a 172.7ha piece of freehold agricultural land in Serendah, Selangor, from Furqan Business Organisation Bhd/Danaharta Nasional Bhd for RM38.4 million cash. At RM38.4 million or RM2.04 psf, the pricing is at a 17% premium to the valuation of RM33 million or RM1.75 psf as appraised in April this year.
Against the going rate, even if we are to assume an efficiency (i.e. percentage of saleable land) of 50%, an effective land price of RM4.08 psf is still very much at the low end of the asking price range of RM4 to RM6 psf for comparable land parcels in the same area. The acquisition will increase WCT’s net debt and gearing of RM236.5 million and 0.17 times as at June 30 to RM274.9 million and 0.2 times that is still highly manageable. WCT intends to develop an integrated township on the land. Based on the rule of thumb that land cost makes up 10% to 15% of gross development value, we estimate that the GDV is RM300 million to RM400 million.
We are neutral on the latest development by WCT. While WCT is acquiring the land at a reasonable price, given the relatively remote location, we do not expect the development to take off in a major way over the short to medium term.
Forecasts are maintained as we do not expect meaningful contribution from the development within our forecast period.
Risks to our view include: (i) New contracts secured in FY11 to FY13 coming in below our target of RM1.5 billion per annum; and (ii) Escalation in input costs.
We have turned positive on the construction sector as there is now even more urgency for the government to expedite the rollout of various public projects to pump prime the local economy to shield it against the increased risk of the global economy slipping into a double dip recession. Indicative fair value for WCT is RM2.08 based on 12 times fully diluted FY12 earnings per share of 17.3sen, in line with our benchmark one-year forward target PER of 10 to 14 times for the construction sector. — RHB Research, Oct 21
This article appeared in The Edge Financial Daily, October 24, 2011.
Maintain market perform at RM2.33 with fair value of RM2.08: WCT is acquiring a 172.7ha piece of freehold agricultural land in Serendah, Selangor, from Furqan Business Organisation Bhd/Danaharta Nasional Bhd for RM38.4 million cash. At RM38.4 million or RM2.04 psf, the pricing is at a 17% premium to the valuation of RM33 million or RM1.75 psf as appraised in April this year.
Against the going rate, even if we are to assume an efficiency (i.e. percentage of saleable land) of 50%, an effective land price of RM4.08 psf is still very much at the low end of the asking price range of RM4 to RM6 psf for comparable land parcels in the same area. The acquisition will increase WCT’s net debt and gearing of RM236.5 million and 0.17 times as at June 30 to RM274.9 million and 0.2 times that is still highly manageable. WCT intends to develop an integrated township on the land. Based on the rule of thumb that land cost makes up 10% to 15% of gross development value, we estimate that the GDV is RM300 million to RM400 million.
We are neutral on the latest development by WCT. While WCT is acquiring the land at a reasonable price, given the relatively remote location, we do not expect the development to take off in a major way over the short to medium term.
Forecasts are maintained as we do not expect meaningful contribution from the development within our forecast period.
Risks to our view include: (i) New contracts secured in FY11 to FY13 coming in below our target of RM1.5 billion per annum; and (ii) Escalation in input costs.
We have turned positive on the construction sector as there is now even more urgency for the government to expedite the rollout of various public projects to pump prime the local economy to shield it against the increased risk of the global economy slipping into a double dip recession. Indicative fair value for WCT is RM2.08 based on 12 times fully diluted FY12 earnings per share of 17.3sen, in line with our benchmark one-year forward target PER of 10 to 14 times for the construction sector. — RHB Research, Oct 21
This article appeared in The Edge Financial Daily, October 24, 2011.
