Friday 27 September 2013

Weida aims to double revenue in five years

WEIDA (M) BHD [] managing director Datuk Lee Choon Chin foresees that the company’s revenue from polyethylene-based building materials will double to RM400 million in five years’ time.

“We are hoping to double or even triple our manufacturing revenue from Peninsular Malaysia in the next five years,” Lee tells The Edge.

To achieve that, Weida has allocated RM100 million in capital expenditure (capex) to boost its capacity from 20,000 tonnes per annum to 50,000 tonnes per annum. Its existing plants are currently running at between 70% to 80% capacity.

The Sarawak-based company is planning to make inroads into Peninsular Malaysia. It has a two-pronged plan to expand its presence there — through its manufacturing segment and a diversification into property development.

Of Weida’s Peninsular Malaysia revenue, 65% can be attributed to the manufacturing segment while the rest is from the environmental engineering services segment.

A portion of Weida’s planned capex will be used to set up a new plant in the peninsula, although Weida has yet to decide where to build this factory. It has an existing plant in Nilai, Negeri Sembilan.

“At the moment, most of our manufacturing sales are coming from the Klang Valley, but we see potential for growth in the southern region of Peninsular Malaysia. Going forward, we may look into a second and third plant to cater for the expansion plan as well as to establish our desired market positioning and share,” Lee says.

Currently, Weida derives 78% of its revenue from Sabah and Sarawak. For FY2013 ended March 31, it reported a net profit of RM50.77 million, up from RM39.34 million the year before. This was on the back of RM383.18 million in revenue, an increase from RM309.68million in 2012.

Weida’s manufacturing division largely caters for the water treatment sector, in which it produces more than 200 types of polyethylenebased building materials. These include septic tanks, rainwater harvesting equipment, water piping, treatment plants and biogas plants.

Weida takes pride in the fact that all its equipment are designed in-house and patented, says Lee.

But the engineering of these products overlaps with the environmental engineering services segment, which also includes the provision of services and projects.

Venturing into property development Weida is diversifying into the property development segment with its first project, the Urbana Residences@Ara Damansara in the Klang Valley.

The company plans to position itself as a boutique developer and intends to launch Urbana in 4Q2013, marking its 30th anniversary.

According to Lee, Urbana will be a serviced apartment project with an estimated gross development value (GDV) of RM230 million. It will be linked to 7 major highways: New Pantai Expressway, New Klang Valley Expressway, North-South Expressway Central Link, Federal Highway, Damansara-Puchong Highway, Sprint and Kesas Highway.

Weida also plans to launch a similar development in Mont Kiara next year with an estimated GDV of RM330 million.

“Construction cost will be about 35% of GDV — more if land cost is included. At the end of the day, we will be earning about 20% to 22% in terms of profits,” says Lee.

The company has, over the years, built a steady recurring income source from the provision and maintenance of water systems as well as the lease of telecommunications towers. The operation comes under its environmental engineering services division.

Weida’s recurring income streams accounted for about 50% of its revenue in FY2013.

With the diversification into property development, Weida’s earnings portfolio is expected to change in the next five years. The environmental engineering services division’s contribution to the group’s earnings is expected to decrease to about 20% to 30% while the property development segment is forecast to contribute about 30% to 40%.

Meanwhile, the manufacturing segment, which presently accounts for about 50% of group’s revenue, is expected to decrease to between 30% and 40%.

A balanced business model
Weida has its roots in the water segment where it began with a strong vision to uplift the living standards of the community in Sabah and Sarawak.

“For over 30 years, we have steered the same course,” Lee says, adding that even though the group has diversified into telecommunications and now PROPERTIES [], it retains the same values.

He says Weida has been profitable for all of its 30 years in business.

“Our business model is such that in terms of income, it is always balanced. We are not overly dependent on any one particular business or sector.

“Because of our business diversification, we cut across different industries. It is the same with our
customer base, which is a good mix of government and private customers.”

Lee stresses the importance of a resilient and robust business model. “The material portion of
our profits and free cash flows is derived from fixed and recurring income.”

In this context, Weida relies on long-term contracts in the telecoms and water treatment sectors.

“We have long-term contracts leasing out the group’s own telecoms towers to prominent operators,” Lee says. “These include DiGi, Maxis and Celcom.”

The estimated net rental income [for this division] in the next five years will be about RM70 million,
he says.

To date, Weida has built 362 telecoms towers, with two-thirds of them under long-term
maintenance contracts.

In the water sector, Weida receives fixed income from long-term contracts for the management,
operations and maintenance of three septic sludge treatment plants in Kuching, Sibu and Miri.

The concession period for each of these three contracts is 25 years. The Kuching plant is already in its tenth year while the Sibu and Miri plants are only about one to two years old.

“The estimated concession income in the next five years will be about RM60 million,” says Lee.

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