Friday, 11 July 2014

Weida: Property To Stir Excitement

Recently Weida's share price has been pushed up by heavy volume. It seems like long term investors are taking position in this stock in anticipation of better financial results ahead.

Why better results? It's because Weida's investment in property development starts to bear fruits.

In its latest quarter of FY14Q4 which ended in Mac14, Weida registered its first ever revenue from property development at RM13.7mil, with a PBT of RM1.1mil.

This comes from the work progress of Urbana Residences @ Ara Damansara which was launched in the final quarter of calendar year 2013.

The development with GDV of RM230mil is almost fully sold.

       Urbana Residences: near to LRT extension

So it is only about 6% of the GDV recognized. We can expect Urbana's sales to contribute massively to Weida in the next 2 years.

Furthermore, its RM350mil second project at Mont Kiara is on the verge of being launched soon. I guess Weida should not have a big problem to do well in Mont Kiara. It is the last chance before GST.

Both projects are joint-venture in which Weida holds 85% of them. The total GDV of RM580mil is quite a huge figure for a small company like Weida.

A 15% net profit margin will produce about RM74mil net profit after minority interest to be distributed in the next 3 years or so.

We can study Fitters to have a glimpse of how Weida will perform in the near future.

Both Weida & Fitters are very similar - mainly a manufacturer with construction business and then venture into property. It's just that Fitters entered property much earlier.

       Urbana Residences: Luxurious condominium

These 2 property projects by Weida were already made known to the public last year and it is predictable that Weida's share price will rise sooner or later. However, I still haven't put my money in it yet...

I notice that in high rise property construction, initial billing progress will be slow and little in the first 1-2 years after launch, and will spike in the third year or at least after the whole framework of the building is done.

As Urbana was launched in late 2013, I'm thinking to take position only after mid-2015, unless Weida is extremely undervalued at one point or its other business segment are doing extremely well.

However, it seems like other business segment are not performing too well.

WEIDA (RM mil) FY14Q4 FY14Q3 FY14Q2 FY14Q1 FY13Q4
Revenue 81.5 80.5 71.3 88.0 96.9
PBT 11.3 4.9 1.9 14.0 3.3
PBT% 13.9 6.1 2.7 15.9 3.4
PATAMI 10.5 1.9 0.3 9.9 55.0

Manu Rev 47.5 50.9 38.2 54.2 44.5
Manu PBT 3.1 6.3 5.7 7.1 2.9
Work Rev 16.4 26.3 27.6 28.8 58.3
Work PBT 7.1 -0.2 0.2 6.7 6.7
Service Rev 4.0 3.3 5.5 5.0 4.7
Service PBT 0.5 0.9 -0.2 0.5 -0.2
Prop Rev 13.7 0.0 0.0

Prop PBT 1.1 -1.4 -3.5

Weida's quarterly results are quite inconsistent, especially in the work segment just like a lot of construction companies.

It delivers a good FY14Q4 quarter result mainly due to contribution from work segment, not the maiden profit from property segment.

However, revenue from work segment drops consistently for the past 5 quarters and there is no guarantee that it will pick up in the next quarter. We don't know whether they are out of contract or it's all because of timing of billings.

WEIDA (RM mil) FY14 FY13 FY12 FY11 FY10 FY09
Revenue 321.4 380.6 309.7 285.9 276.2 267.9
Revenue growth % -15.6 22.9 8.3 3.5 3.1
PBT 32.0 30.2 30.1 34.5 28.0 26.6
PBT% 10.0 7.9 9.7 12.1 10.1 9.9
PATAMI 22.6 50.8 25.2 21.8 17.2 15.0
PATAMI growth % -55.5 101.6 15.6 26.7 14.7

Manu Rev 196.2 196.8 140.3 116.0

Manu PBT 23.5 23.1 14.1 15.2

Work Rev 93.6 184.7 141.8 142.4

Work PBT 12.5 19.4 22.9 22.7

Service Rev 17.8 27.9 27.4 27.5

Service PBT 1.7 1.2 -0.5 1.5

Prop Rev 13.7

Prop PBT -3.8

EPS 17.80 40.00 19.87 17.21 13.55 11.84
NTA 2.86 2.74

Since 2009, Weida's revenue & PATAMI grow consistently until FY13 when it got a special gain from disposal of plantation business.

FY14 was not a good year as PATAMI of RM22.6mil was even lower than FY12's level of RM25.2mil.

I anticipate its manufacturing segment to grow convincingly in FY14 amid robust property & construction activity in the country but it did not really happen. Contribution from work segment also dropped sharply though more telecommunication towers are expected to be built in East Malaysia.

I think the new telecommunication towers contract will be very important to Weida, just like it is for Instacom.

Perhaps the award of contracts is slow...

In an interview with The Edge in 2013, Weida's MD Datuk Lee has a 5-year plan:
  • RM70mil NET rental income for telecommunication tower
    • FY13: RM19.4mil
    • FY14: RM12.5mil (PBT from work segment)
  • RM60mil concession income for septic sludge treatment
    • FY13: RM1.2mil
    • FY14: RM1.8mil (PBT from service segment)
  • RM400mil revenue of HDPE products
    • FY13: RM196.8mil
    • FY14: RM196.2mil (Revenue from manufacturing segment)

Frankly, I am not too optimistic that the target can be achieved even though 2018 is still quite far away, especially the target income for service segment. We may experience another financial crisis within this period of time and everything can change.

       Trusted & leading brand in Malaysia

Overall, Weida is still a net cash company (after disposal of plantation business) with high NTA (RM2.86). At current share price of RM1.80, PE will be 10.6x base on FY14 EPS of 17sen. Its current ROE is at an unattractive 6.2% though.

It is noteworthy that Weida has made quite a few investment since 2007.

It expanded overseas into the Middle East by carrying out a sewerage & water treatment plant project for Syria government. Unfortunately, Syria was hit by civil war later so it ended up with bad debts and the plan to further expanding its presence there was halted.

       Syria - Malaysia - Philippines

In 2007, Weida acquired a significant stake in a property developer Mutiara Goodyear and later became its largest shareholder at 13.8%. 

Mutiara Goodyear has a township project over 1,000 acres called Bandar Tasek Mutiara in Simpang Ampat, Seberang Perai Selatan of Penang.

Earlier in 2006, the ground breaking ceremony for Penang Second Bridge has been done and Simpang Ampat is expected to benefit from the new bridge. This might be the reason Weida bought Mutiara Goodyear's shares I guess.

However, Weida sold all its stake in Mutiara Goodyear in 2009, after Penang state fell into the hand of opposition in 2008.

Thereafter, Tambun Indah came in and took over the development of Bandar Tasek Mutiara and renamed it to Pearl City.

Look at how well Tambun Indah has done in recent years on its Pearl City, aided by the completion of new bridge and development of Batu Kawan. Weida just missed a golden opportunity to increase the value of its investment by selling early for small gain.

       Pearl City: Mutiara Goodyear's development in white

In 2007 as well, Weida also ventured into oil palm plantation in which it acquired 16,000 acres of land in Sarawak and planted it with oil palm trees.

The palm trees will mature in stages from 2012 onward but Weida decided to sell all its stake in the end of 2012, which was the time when the plantation segment was expected to contribute to its bottom line.

Furthermore it was also the time when the CPO price was at recent historical low. Soon after Weida sold the plantation business, CPO price has reversed its downtrend and head upward from early 2013.

MKH also ventured into oil palm plantation business at the same time with Weida though MKH has bigger plantation size. Now MKH is starting to taste the exponential profits from it.

       Weida sold plantation asset to TH Plant in Oct 2012

So I think Weida has lost the opportunity to earn good recurring income with minimal extra cost for the next 20 years.

With the money from disposal of plantation business, Weida diversified into property development and has launched its maiden project in the end of 2013. Property is a lucrative business but is it too late to join in now?

Anyway, there are still many companies queuing up to share the cake of property boom.

At the moment Weida has one ongoing and one future property development project. It is yet to acquire new landbank to extend its property business.

Investors should pray that this time it is not like previous "hangat hangat tahi ayam" investment.

For the 5-year plan, I hope the the MD will keep to his words.

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