Saturday 26 October 2013

Weida: Joining The Property Mania

Since listed in year 2001, Weida has achieved an uninterrupted growth in revenue for the last 12 years.

For FY2013 ended March 2013, its revenue grows another 23.7% from RM309.7mil to RM383.2mil, while its net profit  increases 29.1% from RM39.3mil to RM50.8mil.

However, there is a one-off disposal gain og RM59.9mil in FY2013Q4 (ended Mac 2013), in which Weida disposed its oil palm plantation. Thus, it will be a great challenge for Weida to surpass its FY2013 net profit of RM50.8mil in FY2014.

Without factor in the disposal gain, Weida's profit before tax in FY13Q4 is just RM3.3mil, which is a drop of  72% compared to the preceding FY13Q3 of RM11.7mil.

However, Weida posted a decent FY14Q1 financial results in which it registers RM9.9mil net profit but its revenue of RM88mil is the lowest in the last 4 quarters.

From its historical quarterly reports, Weida's quarterly earnings usually fluctuates a lot mainly due to timing of billings in work division. Thus, it may not produce similar profit like FY14Q1 for the whole FY2014.

RM milFY13FY12FY11FY10FY09

The figures in the table above may not be accurate especially the PBT & PAT, as some figures are restated later.

Weida is a Sarawak-based diversified group founded in 1983. Currently it has 4 core businesses:

1. Manufacturing
  • Manufacturing and sales of high-density polyethelene (HDPE) products, which are mainly water & sewerage related. Its products include water tank, pipes, septic tank, marine floats, chemical tanks, traffic equipment, playground component, litter bins, planter box etc.
  • It has 5 manufacturing plants in Kuching (1983), Kota Kinabalu (1995), Nilai (1997), Miri, Tawau and one in Manila (2009).
  • It manufactures and trades more than 200 types of polyethylene based products & building materials.
  • Its products are designed in-house and patented.
  • It is Malaysia largest HDPE products manufacturer.
  • It also has a reclaimed rubber business.

2. Works
  • Telecommunication  Towers: Construction, installation & maintenance of telecommunication towers and rent to telecom service providers via long term contracts. Started since 2005.
  • Water & Wastewater Infrastructure:  Design, construction and installation of water supply, storage infrastructure & treatment system, wastewater treatment system and others.
  • Design and build biogas plants for livestock farming and palm oil mill effluent treatment.
  • Building construction

3. Service
  • Sewerage treatment service, treatment and disposal of sludge service, underground mapping of buried utilities, investigation and rehabilitation of underground sewer and pipelines network.

4. Property
  • Newly added business segment. To contribute starting from FY2014.

5. Plantation
  • Recently disposed business segment which was started in 2007. It was still loss-making while being disposed.

Weida currently diversifies into property development segment and will launch its first property Urbana Residences in Ara Damansara in the last quarter of CY2013. Urbana Residence comprises 356 units of serviced residence in a 16-storey building with an estimated GDV of RM230mil. It is a joint venture with land owner.

In year 2014, Weida plans to launch its second property project on a 2.93 acres land in Mont Kiara. It is also a JV with land owner and has an estimated GDV of RM330mil.

       Urbana Residences, Ara Damansara

Actually this is not the first time Weida ventures into property business. Back in year 2007, Weida purchased a significant stake in listed property developer Mutiara Goodyear, who developed Bandar Tasek Mutiara (Pearl City) before Tambun Indah took over. Weida was its single largest shareholder at 13.8% in 2009 but subsequently sold all its shares in year 2009. Mutiara Goodyear was then changed its management and its name to Nadayu.

This is not the only case that Weida invested and divested in a relatively short period of time. In year 2007 as well, Weida diversified into oil palm plantation business when it acquired 16,000 acres of agriculture land in Sarawak. The land was planted with oil palm in stages. In end of year 2012, Weida decided to dispose all its plantation business to TH Plantation. The disposal was completed in 27/2/2013. 

The plantation division started to produce revenue in Oct 2011 but was loss-making until the disposal, as it usually takes more than 5-6 years for the palm trees to mature and produce significant amount of fruits. I think Weida chose to dispose its plantation at this time mainly because it sees greater prospect and faster earnings from property development, besides current lowish CPO price.

The cash gained from disposal of oil palm plantation comes just in time for Weida's first foray into property development.

Before the said disposal was completed, Weida's cash stood at RM63.1mil while its total borrowings amounted to RM158.5mil at the end of FY13Q3 (ended Dec12). In its latest FY14Q1 quarterly report, it has a total cash of RM259mil and total borrowings of RM172.6mil. Thus, it is currently in a net cash position.

RM mil FY14Q1 FY13 FY12 FY11
Manufacturing Rev 54.2 195 140.3 116
Manufacturing Profit 7.1 27.9 14.1 15.2
Towers Rev 16.8 32 66.4 38.5
Towers Profit 6.1 7.1 17 13.7
Other Works Rev 12 122.9 75.4 103.9
Other Works Profit 0.7 2.3 5.9 9
Service Rev 5 22.9 27.4 27.5
Service Profit 0.5 1.2 -0.5 1.5
  Segment Revenue & Profit

Weida generates consistent income through long term contracts in wastewater management and rental of telecommunication towers.

So far Weida has 3 long term contracts of 25 years each with Sarawak government for the management and maintenance of septic sludge treatment plants (Kuching 10th year, Sibu & Miri 2nd year). However, as we can see from the table above, service division just contributes a little to its profit, as it's a JV with other company.

Weida has built 362 telecommunication towers to date mainly in Sabah (from 60 towers in 2007) with two third of them under long term maintenance contracts.

From a recent interview with The Edge, Weida's MD Datuk Lee mentioned that the estimated net rental income from the towers in the next 5 years will be about RM70mil, while the concession income from the septic sludge treatment will be about RM60mil in the next 5 years.

In the same interview, The MD also said that he foresees the company's revenue from HDPE products will double to RM400mil in 5 years. With its current plants running at 70-80% capacity, Weida has allocated RM100mil capex to boost its capacity from 20,000 tonne/annum to 50,000 tonne/annum.

If what the MD said are realistic and not boasting, then Weida may have a bright prospect ahead.

       Weida's HDPE products

Weida has a strong presence in the East Malaysia with 78% of its revenue comes from there. It plans to expand more to Peninsular Malaysia especially Klang Valley and Johor.

Property development in Klang Valley may help to build Weida's reputation in the peninsular if successful. The new division will push up Weida's revenue, margin and earnings significantly like what we can see in Scientex and Fitters.

In year 2007, Weida has expanded its presence in the Middle East through a turnkey contract to study, design and build sewerage and water treatment plants in Syria. Though Weida has completed its work in Syria, it suffers some impairment loss on receivables due to the political unrest in Syria. So it may not dare to get new contracts there I guess.

Weida's ventures into Syria, Plantation and Mutiara Goodyear are all short-lived. How about its property division?

I think Weida will have a great start in property as the location of its property in Damansara and Mont Kiara is strategic. However, Weida needs to scout for more landbanks to ensure that its property division will continue to prosper.

But, so many companies join the property development lately. Is this a healthy situation?

       Weida is trying to break RM1.75

Perhaps excited by the property venture, Weida's share price has reached all time high of RM1.75 recently. At this price, is it still worth to buy?

If it is not because of the one-time gain, I think Weida's profit after tax for FY2013 will be around RM20mil only, which is lower than its preceding year of RM24.1mil. Thus, EPS for FY13 will be about 15sen. At RM1.75, its PE ratio will be 11.7, which is not cheap for a company in industrial sector.

However, this does not factor in property development which should start to contribute in FY2014. With normally higher margin in property development plus organic growth of its other core businesses, Weida may give investors a surprise in FY2014.

Weida usually gives away 20-30% of its net profit as dividend. It paid the same 4sen (less tax) dividend yearly since year 2009. For FY2013, it pays 4sen dividend plus a special dividend of 1.5sen for its disposal gain. Without the special dividend, the net dividend of 3sen (after 25% tax) translates to a yield of just 1.7% at share price of RM1.75.

Anyhow, I am keen to know its Q2 results which will be announced next month, while waiting for a lower entry price.


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