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Monday, 8 May 2017

(The Star) A surprise from Weida

PETALING JAYA: Sarawak-based Weida (M) Bhd seems to be basking in a sweet spot of growth.

The low-profile company, which is already in a position to benefit from the ongoing construction of the Pan Borneo Highway project in its home state, is set to see its income prospects improve further with the hospital concession that it has just bagged over the week.

Needless to say, some investors have taken notice.

Shares of Weida, whose diversified businesses comprise construction, property development, manufacturing and engineering services, have been rallying since late last year.

The counter gained further momentum over the week over news that the company has been awarded a 20-year government concession, worth at least RM351mil, to build new buildings and facilities for the Sarawak general hospital under a build-lease-maintain-transfer model.

Weida’s shares hit its new 52-week high of RM2.02 last Wednesday before settling at RM1.98 last Friday, giving the company a market capitalisation of RM251mil.

Year-to-date, the counter has gained 12.5%.

At current levels, Weida’s shares are trading at an inexpensive valuation of nine times the group’s earnings. This compared with its peers that are presently trading at price-to-earnings ratios of at least 15 times.

While no analyst covers Weida, a fund manager said that the business fundamentals of the company, coupled with its inexpensive valuations, could indicate there would be upside potential for Weida’s shares.

“Weida is pretty much an overlooked stock in the small-to-mid-cap catergory... Valuation is undemanding, and considering the fact that the company has a steady earnings-visibility story – backed by growth in the country’s construction industry as well as the group’s projects or contracts with the Government – we think Weida’s shares could see some bullish trends going forward,” the fund manager said.

Pointing to the hospital concession that Weida has recently secured, for instance, the fund manager said earning contributions from the deal would likely be significant.

“While it is hard to put a figure on the potential earnings from the deal, we expect it to be a lucrative one, and will contribute significantly to the group’s growth,” he said.

The concession agreement for the building of the Sarawak General Hospital was signed by Weida’s 49%-owned indirect associate Asaljuru Weida Sdn Bhd (AWSB) with the Health Minister.

Under the concession agreement, Asaljuru Weida – whose other shareholders are Asaljuru Construction Sdn Bhd, which has a 40% stake, and Cahaya Majestic Sdn Bhd, which owns the remaining 11% stake – will build a daycare centre, a medi-hotel with a multi-storey car park and a multi-storey car park complex for the Sarawak General Hospital in Kuching. It will also provide asset management services to the new buildings and facilities upon completion, as well as operate the medi-hotel and car park.

(Cahaya Majestic is a company of Datuk Dr Stalin Hardin, who serves as an adviser to the Sarawak state government on the Sarawak International Medical Centre project. He had previously served as independent director in Weida.)

According to Weida’s filing with Bursa Malaysia, the concession agreement is not expected to have any material impact on the group’s earnings for the financial year ending March 31, 2018. However, the concession is expected to contribute positively to Weida’s group earnings in future financial years.

Growth prospects

Weida is expected to ride on the growth of the construction industry in Malaysia as that could boost demand for the group’s products, which include polyethylene-based building materials such as water tanks, septic tanks, water pipelines, electrical power conduits, telecom conduits and towers and drainage culverts.

“The construction boom in Malaysia, particularly Sarawak, is a boon for Weida. We expect the group to see strong demand growth for its products and services,” a broker said.

For instance, the construction of the Pan Borneo Highway will likely offer attractive markets for Weida’s products, including those for public utilities along the highway. These products range from water pipelines to electrical power conduits, telecoms conduits and towers to drainage culverts.

At present, the group’s polyethylene culverts are already increasingly being accepted by both the government sector in road construction projects, and the private sector, especially oil palm plantations for drainage infrastructure.

It is noted that new residential, commercial and industrial developments in Sabah and Sarawak will also boost demand for Weida’s polyethylene engineering products for water and wastewater applications.

In general, the manufacturing and sale of polyethylene-based building materials represents the core business of Weida, accounting for 52% of the group’s earnings for the nine months ended Dec 31, 2016.

As for its works division – which involves the construction of telecommunication towers and share of rental proceeds of telecommunication towers as well as design, construction and installation of water supply, storage infrastructure and treatment systems, wastewater treatment specialised systems, hydro systems and other infrastructure – Weida is expected to benefit from the Government’s plan and initiatives under Budget 2017 to improve telecommunication infrastructure especially Internet access to ensure greater internet connectivity coverage.

This division contributes about 29% to the group’s earnings.

The outlook for Weida’s property development division, which accounts for 11% of the group’s earnings, is more cautious.

Weida has already indicated in its filings that it would remain cautious with the timing and launching of its residential projects in Mont’ Kiara and Cheras in Kuala Lumpur due to the sluggish market.

For the nine months ended Dec 31, 2016, Weida saw its net profit grow 8.8% to RM20mil from RM18.4mil in the previous corresponding period. Consequently, the group’s earnings per share rose to 15.77 sen from 14.50 sen. Weida attributed its earnings growth to better contribution from both its manufacturing and property development divisions.

During the nine months in review, the group’s revenue fell 21.9% to RM239.9mil from RM307.1mil previously on low collection from all its business segments. However, the group’s lower revenue was partly offset by higher profit margin.

The group’s financial position remains healthy, with cash balances amounting to RM115.2mil as at end-December 2016, while its total borrowings stood at RM68.6mil.

Its net assets per share stood at RM3.29 as at Dec 31, 2016.