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.

Weida: Disappointing FY14Q2

Weida FY14Q2 Financial Result

WEIDA	FY14Q2	FY14Q1	FY13Q4	FY13Q3	FY13Q2	FY13Q1
Revenue	71.3	88.0	96.9	98.6	111.0	72.3
PBT	1.9	14.0	3.3	13.7	9.2	3.1
PBT%	2.7	15.9	3.4	13.9	8.3	4.3
PAT	0.3	9.9	55.0	8.9	6.2	1.7
Manu Rev	38.2	54.2	42.5	53.9	56.2	42.3
Manu Profit	5.7	7.1	2.8	10.2	4.8	5.3
Work Rev	27.6	28.8	58.3	39.3	44.8	29.3
Work Profit	0.2	6.7	3.8	4.8	2.8	2.4
Service Rev	5.5	5.0	4.7	5.5	9.4	8.3
Service Profit	-0.2	0.5	-0.2	0.2	0.5	0.7
Prop Rev	0.0
Prop Profit	-3.5
Total Equity	348.5	353.3	347.6	216.7	207.7	205.2
Total Assets	632.0	652.4	603.3	576.4	546.4	580.4
T/Receivables	100.2	120.5	149.3	183.8	144.4	153.0
Inventories	53.1	46.5	46.2	42.8	42.3	46.2
Cash	229.4	259.0	263.5	63.1	65.9	87.9
P/ Dev Cost	4.0
Total Liab	272.7	285.3	242.1	329.7	310.9	347.6
T/Payables	97.8	101.7	95.6	102.7	98.8	102.7
ST Borrow	79.4	67.6	59.1	73.5	70.4	96.5
LT Borrow	79.4	105.0	76.0	85.0	119.7	131.6
Net CF	-63.4	-34.1	209.2	11.1	13.2	35.3
Operation	-22.8	-5.3	97.3	15.5	33.3	11.1
Investment	1.7	-0.6	133.5	-7.1	-9.9	-4.9
Financing	-42.3	-28.2	-21.6	2.8	-10.1	29.2
EPS	0.27	7.81	43.53	7.03	4.92	1.79
NAS	2.75	2.78	2.74	1.71	1.64	1.62

After posting an impressive FY14Q1 result 3 months ago, Weida's current FY14Q2 result is terrible. Its revenue drops 19% QoQ from RM88.0mil to RM71.3mil, while net profit drops 97% from RM9.9mil to just RM0.3mil.

Weida's manufacturing segment suffers significant drop in revenue and profit due to lower demand in this quarter. While the revenue from work segment remain flat, its PBT drops substantially due to one-off construction cost in this quarter and lower contribution from telecommunication towers. Its service segment suffers minor loss due to disposal loss of RM0.8mil in the quarter. 

Weida's property segment has just taken off with its maiden project Urbana Residences (GDV RM231mil) launched in early Oct. It may start to contribute to the group's profit next quarter. I estimate this project may give an average of RM10-12mil net profit every year to Weida for the next 3 years.

       Urbana Residences

Overall this quarter's results is disappointing, especially its core manufacturing segment. If the growth in manufacturing does not increase or sustain, then investing in Weida will be less exciting although it has just ventured into property and has good prospect in telecommunication tower business in Sabah.

Many people overlook Weida as a potential beneficiary in the RM1.5bil telecommunication towers projects in East Malaysia announced in Budget 2014, as Weida has a strong presence in Sabah.

I will keep Weida in my stock watch list, but most probably will not put money in it until subsequent quarter's results, as history suggests that its revenue & profits tend to fluctuate a lot.

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 mil	FY13	FY12	FY11	FY10	FY09
Revenue	380.6	309.7	285.9	276.2	267.9
PBT	30.2	30.1	34.5	28.0	26.6
PAT	50.8	25.2	21.8	17.2	15.0

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.