· A diversified group. Weida (M) Bhd (WEIDA) is a well-diversified company that operates four business segments, i.e. (i) manufacturing of polyethylene-based building materials, (ii) environmental services (wastewater management), (iii) telco towers, and (iv) property development. Its manufacturing division which is WEIDA’s core business drives 54% of its revenue of RM333.8m in FY15, followed by telco towers (19%), property development (13%) and lastly waste water management (7%).

· Cash rich. Apart from being well diversified, WEIDA’s balance sheet is also relatively strong with a net cash position of RM64.7m or c.4.9 sen per share at end-4Q15, providing ample room to gear up by another RM250m before breaching our comfortable net gearing threshold of 0.5x should they plan to embark on another development project.

· Upping the ante in property development. Back in 2013, WEIDA launched its maiden property project, the Urbana residence, with an estimated GDV of RM231.0m. That project was well received at 90% take up within a month of its launch. After Urbana residence’s success, we gather that management intends to launch its second property project in Mont Kiara namely Ardena with an estimated GDV of RM330m in the near to medium term (FY16) as most of the preparation works for the project are almost in place. That aside, its proposed joint development agreement with Pacific Mutiara Sdn Bhd to develop 11.5 acres of land in Cheras area into affordable to lowcost development has recently become unconditional. Based on a minimum density ratio of 200 units per acre, we reckon that the project would have an estimated GDV of RM575.0m assuming an average selling price of RM250.0k per unit.

· Earnings catalyst from property development. Moving forward, while we expect its manufacturing, environmental services, and telco tower division to continue enjoying steady growth, say 10%, underpinned by the strong demand in the construction industry and the need for water supply, sanitation facilities, housing and general infrastructure developments in Sabah and Sarawak, its property division will still be its core earnings driver. We are expecting WEIDA’s earnings catalyst to come from its property development division. Hence, we are projecting WEIDA to register a net profit growth of 21% and 44% for FY16E and FY17E, should they launch its Mont Kiara project, i.e. Ardena in FY16. To recap, its property development division is currently still loss making, primarily due to higher operating costs, i.e. sales and administration, and marketing costs incurred for the preparation works for Ardena.

· Not Rated. While we are projecting a healthy net profit growth for the next two years, we believe that the stock is fairly valued at this juncture as we are valuing it at only RM1.63 based on 10.3x FY16E PER. Our applied PER of 10.3x is inline with FBMSC Index’s 1-year forward PER of 10.3x. Furthermore, our earnings projection relies heavily on the timing of its launch for its Mont Kiara project. We believe there is potential earnings risk if this particular project fails to take off in FY16.

Source: Kenanga Research - 4 Jun 2015