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Thursday, December 29, 2011

Market cautious on WCT

An artist’s impression of WCT’s existing project, the Platinum Plaza, in Ho Chi Minh City. The company is set to undertake its second property project on a 11.5-acre site in the Vietnamese capital

Latest Vietnam project may be affected by slowing global economy

PETALING JAYA: The market is for now cautious over construction and property company WCT Bhd's joint venture with Southern Land Corp to develop 11.5 acres in Ho Chi Minh City, a project in which the former has a 70% stake.

This would be the second project for WCT, whose other project comprises an integrated development on 22.2 acres in the Vietnamese capital.

However, WCT's share price only gained 2 sen to RM2.32 despite the announcement and allowing for the quiet trading on the local bourse going into the long weekend break.

This could be due to the fact that while analysts have positive long-term views for Vietnam, current global economic conditions as well as high inflation and the devalued dong might be the stumbling blocks in the short term.

The country's inflation for December was still a eye-watering 18.1% year-on-year after rising 19.8% in November and surging 21.6% in October while to-date, the US dollar has gained nearly 8% against the dong.

Analysts believe the project, which involves the development of medium to high-end condominiums and commercial shoplots for the purposes of lease and/or sale, has long-term potential but could face challenges due to the expected slowdown of the global economy next year.

They have also maintained their financial forecasts for WCT pending guidance on the project's launch date and gross development value.

Affin Investment Bank Bhd analyst Ong Keng Wee said in a report that the Vietnamese property industry had long-term potential but short-term uncertainties remained with the eurozone debt crisis still unfolding and the global economy expected to slow in 2012.

He has maintained financial year ending Dec 31 (FY11) to FY13 forecasts with a target price at 15 times earnings per share for 2012 and maintained a “buy” call on the stock pending further information on the project.

Ong noted that the good response to Gamuda Bhd's Celadon City (in Ho Chi Minh City) and Gamuda City (in Hanoi) was a comforting sign but said that WCT construction division's recent tender failures and likely inability to secure RM2bil of new projects this year were the key concerns.

Meanwhile, analysts at Kenanga Investment Bank Bhd, who have maintained their “outperform” call on the stock, said global economic uncertainties could expose the project to construction delays and low take-up rates.

“There is no change to our forecast at this juncture,” they said, adding that the project would only contribute to earnings by FY14 with a contribution of 7 sen to sum-of-parts valuation although that had not been factored into the forecasts yet.

They reckon the company would likely fork out RM78mil for its portion of the joint venture and gear up to RM314mil (assuming operating margin at 20%) while the project financing could further leverage the balance sheet up to 1.07 times gearing throughout the 5-year project period (from 0.9 times as at third quarter ended Sept 30).

WCT said in an announcement to Bursa Malaysia on Tuesday that the project had a duration of 50 years from the date of receipt of the investment certificate awarded by the People's Committee of Ho Chi Minh City on Dec 24.

The company also announced in late October the acquisition of 468 acres in Rawang for RM38.4mil.

By The Star

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