WCT has acquired a 60% stake in Subang Skypark for RM45m which involve the retail area of Terminal 3, car park, business aviation centre and hangar complex. The acquisition allows WCT to develop the said car park (5.13 hectares) into a mixed commercial development. The effective land cost translates into RM134.5psf which we reckon is fair as it also comes along with the existing facilities of Subang Skypark. No change to earnings forecast but we lower our SOP TP from RM2.27 to RM1.81 after imputing a 20% discount to account for potential delays in its de-gearing plans (i.e. REIT and land sales). Maintain BUY as share price has fallen 25% YTD.

NEWSBREAK

WCT announced that it has acquired a 60% stake in Subang Skypark for RM44.6m. Subang Skypark is mainly involved in commercial and aviation related developments which comprise of (i) the commercial retail area of Subang Skypark Terminal 3; (ii) a car park; (iii) a business aviation centre; and (iv) a hangar complex known as Skypark Regional Aviation Centre.

HLIB’s VIEW

Rational for acquisition. WCT’s rational for the acquisition includes (i) potential development of the car park into a mixed commercial development; and (ii) gaining exposure to Subang Skypark’s existing business as mentioned above.

Effective land cost. From Subang Skypark’s website, the said car park land measures 5.13 hectares. Based on WCT’s acquisition cost for the 60% stake, this translates to an effective land cost of RM134.5 psf which we reckon is fair as it also comes along with the existing facilities of Subang Skypark.

Development plants. While development details on the car park land are limited, its website states that this will include a hotel, entertainment and F&B outlets, aviation museum, a hypermarket and an aviation theme park. A multi-storey car park is also included. However, with WCT now holding the majority stake, we do not discount a possible change in the development plants.

Financials of Subang Skypark. Based on the financial information acquired from the Companies Commission of Malaysia, Subang Skypark incurred a slight loss of RM0.7m on back of RM21.5m revenue for its FYE Dec 2016. As of that period, it had a book value of RM22.4m.

Forecast. The proforma impact of the acquisition to net gearing is expected to be minimal, increasing from 88% (4Q17) to 89%. Our earnings forecast are unchanged as we await further details on the proposed development plans.

Maintain BUY, TP: RM1.81. While there are no changes to our earnings forecast, we take this opportunity to scale back our TP by implementing a 20% discount to our SOP valuation. This is to account for the potential delays in some of its de-gearing initiatives (i.e. REIT and significant land sales). Our SOP based TP is reduced from RM2.27 to RM1.81, implying FY18-19 P/E of 16.2x and 14.9x, respectively. Nonetheless, with share price fall of 25% YTD, we fell that this provides an opportunity to accumulate. WCT remains backed by significant surplus land value (i.e. market value less book value) of RM1.6bn (RM1.16/share).

Source: Hong Leong Investment Bank Research - 3 Apr 2018