WCT addresses softening property mart

Focus MALAYSIA WEEKLY ISSUE 054

THE WEEK OF DECEMBER 14 – DECEMBER 20, 2013

WCT Holdings Bhd is taking steps to prepare the construction and property development group for the anticipated softening of the property market.

Managing Director Taing Kim Hwa says: “WCT is mindful of and concerned about the potential softening of the property market, which may result in the slower take-up of properties.

“In order to mitigate this, the company will focus on seizing a strategic property land bank to support further expansion to its property portfolio in developed  and mature areas such as Klang Valley, Iskandar Malaysia, Penang and Kota Kinabalu.”

WCT has been involved in property development for close to two decades.  This is carried out mainly by wholly-owned subsidiary unit WCT Land Sdn Bhd, which is also involved in property investment and property management.

WCT has property projects in Petaling Jaya, Shah Alam and Klang in Selangor, as well as Iskandar Malaysia in Johor.  They include the Skyz Jelutong Residences at Bukit Jelutong, Shah Alam; Paradigm Residences in Petaling Jaya; the Medini Signature in Iskandar Malaysia; and The Landmark at Bukit Tinggi 2, Klang.

Taing tells FocusM that for next year, WCT’s property unit will focus on strengthening its market presence in the local property market.

“With a strong 17-year track record in property development, WCT will continue to strengthen its market presence in the local property market and expand on the quality land bank aimed at creating the opportunity for the provision of diversified, high-quality and reasonably-priced properties.

“Moving forward, the group will continue to leverage on its real estate development expertise and tract record in the developments of the Bandar Bukit Tinggi Klang township, d’Banyan luxury homes and 1Medini, to create more value for future development projects,” he adds.

In Budget 2014 unveiled in October, the government announced that the RPGT would be increased to 30% for properties disposed of within three years, and to 20% and 15% for properties disposed of within the fourth and fifth years, respectively.

Although the move is seen as part of measures to stablilise the property market, analysts expect demand for property to soften due to increased restrictions to curb speculation.  Other measures include imposing higher minimum prices for foreigners, ban on DIBS (developer interest-bearing scheme) and tighter bank lending.

“We have expected property demand to soften post-Budget 2014 as sentiments are affected …(Nevertheless), the demand for prime locations, affordable housing and landed properties should remain resilient,” says Hwang DBS Vickers in a mid-November research report.

Huge cash pile

As of Sept 30, WCT has cash and bank balances of over RM1.44 billion.  The cash position is believed to be one of the highest in recent times.  Cash and bank balances in 2012, 2011, 2010, 2009 & 2008 were at RM1.08 bil, RM804 mil, RM1.16 bil, RM713 mil and RM719 mil, respectively.

Taing says part of the cash will be used for loan repayments due in the next 12 months.

“The high-cash coffer has been set aside for loan repayments that are due in the next 12 months, capital expenditure to grow the property-investment portfolio through the Paradigm Mall brands in Johor Baru and OUG Kuala Lumpur as well as the active acquisition of a quality land bank in strategic locations,” Taing explains.

A look at the 2012 annual report shows the company has over RM380 mil in term loans that need to be settled within the next two years. 

Analysts say the stronger cash position may also mean the company is expected to be actively pursuing construction projects next year.

“Having a stronger cash position will help the group when it comes to securing favourable funding terms; this in turn will allow the company to be more active on the construction scene,” says a research head from a local brokerage.

Aside from being a property developer, WCT is well-known in the construction circle, with several more jobs under its belt.

Over the years, the group has been involved in the building of three Formula One circuits (at Sepang, Bahrain and Abu Dhabi); the KL International Airport; the New Doha International Airport; the Yas Marina Royal Yacht Club in Abu Dhabi, Bahrain City Centre; the Qatar Government Administrative Building in Doha; the Kuala Lumpur-Karak Highway; the North-South Expressway (Gopeng-Simpang Pulai section); the Guthrie Corridor Expressway; the Dukhan Highway from Shahaniya to Zekreet in Qatar; The Curve Shopping Centre; the UiTM University campus, among others.

This year, WCT is reported to be one of the lowest bidders for a road and bridge project in Qatar worth RM1 bil.  However, changes in the scope of work by the client have caused the project to be re-tendered.  The result of the re-tender is expected to be known by the end of Q1 2014.  The re-tender of the Qatar job was part of the order-book replenishment from RM2 bil to RM1 bil.

“The cut reflects the slower-than-expected jobflows from the Middle East,” says Alliance Reseach analyst Jeremy Goh.

The company, which has an orderbook of about RM5 bil, says it is in the midst of reviewing and planning its 2014 construction targets is hence unable to provide guidance in this area.

Labour crunch fears?

The company experienced slower construction acitivities during the third quarter, which saw a 15.5% drop in construction revenue compared with the second quarter.

“Management explained that this was caused largely by the raids on illegal foreign workers carried out on Sept 13, which resulted in shortage of workers in construction industry,” says TA Reaseach in a November report.

“We gather that contractors were affected by the raids, and even legal workers who did not carry proper documentation with them (were affected).  Having said that, said documents are usually kept by employers or the immigration department, pending visa stickers to be affixed by the authorities.”

To solve the labour shortage, WCT has arranged to bring in foreign workers for its subcontractors and the situation has since improved.

WCT says it has brought in 600 foreign workers so far this year, and is expected to bring in another 400 by year-end.  WCT has a quota of 1,000 foreign workers.

“The current quantity of workers is sufficient to support the projects in the pipeline.  In case of shortage, WCT will apply to the ministry to request an addition to the quota,” says Taing.

The company adds that it is not overly concerned by the labour issues as these have never been a stumbling block to the company with the exception of the recent labour shortage issue encountered by subcontractors, which resulted in the slower progress of construction and property development.

“In order to reduce staff turnover, we have put in place a hiring policy which ensures the workers make a decent living with their skills and services.  We are monitoring the foreign labour market closely,” he adds.

Foreign-worker issues aside, there are other challenges WCT is expected to face in 2014.

“One of the possible challenges is talent retention and recruitment of quality and talented people.  We strive to constantly review our talent-retention policy, to ensure we remain competitive in the industry and at the same time motivate our talented employees to continue to work together as a team with full commitment,” Taing says.

“The second factor is economic volatility, which may affect product / material pricing, interest cost and contract bidding pricing.  In order to brace ourselves for such volatility, WCT practises stringent cost-monitoring and control as well as efficient cash0-management, to minimise interest costs and leverage on our expertise to bid for contracts related to earth and infrastructure work.”