BY S. PUSPADEVI
On track: Last October, WCE managing director Datuk Neoh Soon Hiong told StarBizWeek that some parts of WCE are expected to be open earlier than scheduled and the whole highway is on track for full completion in three years.
FOLLOWING merger and acquisition activities in the infrastructure sector that have ascribed high valuations to highways in Malaysia, some investors have been turning bullish on WCE Holdings Bhd (WCE).
The shares of WCE have been rallying since January.
The stock hit a 52-week-high yesterday at RM1.53, giving the stock a lofty price to earnings multiple of over 60 times financial year 2016 earnings.
Notably, rallying alongside WCE is MWE Holdings Bhd, which also hit its 52-week high yesterday at RM1.64.
MWE, controlled by low-profile tycoon Tan Sri Surin Upatkoon, owns close to 26% of WCE.
A dealer says the excitement around these stocks relate to the West Coast Expressway (WCE) because of the high value of recent highway transactions.
Last year, the Employees Provident Fund (EPF) inked a deal in which it bought 40% of the highly coveted Duta-Ulu Kelang Expressway (Duke 1 and 2) for RM1.13bil.
This price tag had valued Duke 1 and 2 at a whopping RM2.82bil, higher than the market capitalisation of Ekovest Bhd then, the vendor of the highway, at RM2bil.
This led to Ekovest being deemed an undervalued stock then, and since then, its share price has risen to give the company a current market capitalisation of RM3bil.
Recently also, Permodalan Nasional Bhd (PNB) became the latest suitor of Silk Holdings Bhd’s (SHB) unit Sistem Lingkaran-Lebuhraya Kajang Sdn Bhd, the concession holder of the Kajang Traffic Dispersal Ring Road, known popularly as Silk Highway.
The country’s largest fund management company is making a cash offer of RM380mil for the highway company.
In WCE’s case though, the highway isn’t built yet, but it is progressing well.
A unit of WCE (formerly known as Kumpulan Europlus Bhd or KEuro) was awarded a 60-year concession in January 2012 by the Federal Government to build, operate and transfer the 233km WCE, which will connect Banting in Selangor to Taiping in Perak.
Last October, WCE managing director Datuk Neoh Soon Hiong told StarBizWeek that some parts of WCE are expected to be open earlier than scheduled and the whole highway is on track for full completion in three years.
The WCE is the first in a new generation of future highways that will be built according to new concession terms that have been revised by the Government unlike its predecessors.
It has a profit-sharing element and after the highway reaches a targeted internal rate of return, whatever extra will be shared with the Government.
To be sure, the WCE is an old project that has seen many stops and starts.
But in 2007, IJM Corp Bhd bought into the highway, when it became the single largest shareholder of WCE and galvanised the project that was mooted by Tan Sri Chan Ah Chye.
The project was delayed for many years, mainly due Chan’s weak financial standing and KEuro’s weak balance sheet at the height of the Asian Financial Crisis in 1997/98.
Subsequently in July 2013, MWE bought Chan’s 22.15% block of shares in listed company KEuro for RM155.79mil cash or RM1.35 per share.
It is also noteworthy that in November 2015, Upatkoon wanted to take private MWE with a takeover offer of RM391mil in cash and deferred amount, but later aborted the deal.
The RM6bil tolled expressway, slated for completion in 2019, is expected to connect main coastal towns including Klang, Kuala Selangor, Teluk Intan, Setiawan, Manjung and Hutan Melintang, among others.
These towns are only accessible via a trunk road.
According to a fund manager, the usage of the expressway is expected to be high.
“In a Perak alone, there are around 20 industrial estates that straddle the West Coast Expressway, while in Selangor there are 10.
“Usage (of the expressway) will be high as many of these factory owners would prefer it as its terrain is rather flat compared with the hilly North South Expressway (NSE), especially the route to Ipoh,” the fund manager says.
The fund manager also says that WCE will play a complimentary role in alleviating traffic congestion.
“The highway will cannibalise traffic from Changkat Jering to Banting.
“Therefore, more lorries, container trucks and private vehicles travelling to west coast town would use the highway.
“Additionally, Federal roads along the west coast leading to major towns are congested during the weekends and holidays.
“Many are likely to use the WCE to cut travel time,” he says.
In terms of earnings, WCE posted a net profit of RM23mil for its nine months ended Dec 31, 2016, marginally lower than RM25mil previously.
MWE saw a turnaround in its earnings, posting a profit of RM10.7mil for its nine months ended Dec 31, 2016 from a loss of RM4.17mil previously.
The Penang-based garment maker is also involved in businesses ranging from telecommunications to property.
More interesting is this - MWE’s 26% stake in WCE now has a market value of RM390mil, which is slightly higher than MWE’s market capitalisation of RM373mil.
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