Initial losses expected for klia2 retail project

SHAH ALAM (Feb 12, 2014): WCT Holdings Bhd expects the group's third retail project, the upcoming Gateway@Kuala Lumpur International Airport 2, Sepang, to make financial losses in the first three years, before it starts to generate annual revenue of RM70-80 million as well as operating profit of RM15-20 million a year, said its director Kenny Wong Yik Kae.
"For the first three years from now, we will be making some losses because of depreciation. As we all know, this is a RM600 million project. Hence, we need to ensure that the cost is being minimised in the first few years," Wong told the press conference after WCT's EGM here yesterday.
Constructed by WCT and completed in July last year, Gateway@KLIA2 is an integrated complex that comprises a transportation hub for the Express Rail Link, taxis and buses, a commercial building with a net rentable retail space of 350,000 sq ft.
According to Wong, the take up rate of retail space is now at 80% tenancy, with expectation of it reaching 85% to 90% once the new low-cost carrier terminal is open.
On the possible delay in the opening of klia2 main terminal, Wong acknowledged there will be some form of impact to WCT, but it will not harm the group's business.
He further said that WCT will continue to seek compensation from Malaysia Airports Holdings Bhd (MAHB) over the delay, adding that its rights is "well preserved" as the compensation is governed under the concession agreement.
"We want to work with everyone who is involved in klia2 to ensure that the opening will be in May. The concession agreement is for 25+ 10 years, we still have a long way to go in our partnership with MAHB," Wong said.
The group's head of corporate and finance Chong Kian Fah added that WCT is a business entity and it has to be fair to its shareholders.
"This kind of issue (compensation) takes a long time to resolve, which they (MAHB) cannot do at the moment because their main priority now is to get klia2 to open as scheduled," he said, without giving guidance on the kind of compensation that WCT can expect.
On another note, Wong said WCT could set up a real estate investment trust (REIT) in 2018 at the earliest, after the group's total retail space reaches some 5 million sq ft.
"There is definitely a plan, but our retail space must be sizeable enough. We are still very new in the mall business and we have (fight for market share)," he said.
At the moment, WCT has a retail space of 1.7 million sq ft from Bukit Tinggi Shopping Centre, Klang South and Paradigm Mall, Petaling Jaya.
The addition of Gateway@klia2, Paradigm Mall, Johor Baru (1.3 million sq ft) and Paradigm Mall OUG (1.7 million sq ft) will bring its total retail space to about 5 million sq ft.
Its REIT plans aside, Wong said WCT is expanding its income stream and strengthening its recurring income from the property investment and management business, which contributes about 15% of profit to the group.
The profit contribution from this business division is expected to reach 30-35% by early 2018.
On a separate note, Chong said WCT is keen to be involved in both the construction as well as the property development area of the Employees Provident Fund (EPF)'s Sungai Buloh's township project.
"We will tender for the infrastructure and civil engineering works. We are waiting for the tender invitation from them. They have not come out with the details yet. But when the time comes, surely we will submit our plan," he said.
"We will also consider property development, because the location is quite viable," he added.
Chong said WCT is financially strong and sees no reason to raise fresh capital from public investors.The group's net gearing ratio is less than 0.5 times, with some RM800-900 million in cash reserve.
WCT has an outstanding orderbook of RM2.7 billion as at September 2013. The orderbook includes civil works at Tun Razak Exchange and the new headquarter for the Ministry of Interior, Qatar.
The group is also tendering for projects worth RM3-5 billion, a majority of which is in Malaysia, as well as some projects in Middle East, mainly from Doha, Qatar.