WCE eyes long-haul traffic with new openings

WCE has projected an average daily traffic of 300,000 vehicles upon full completion of the 233km highway, which will have 11 sections in total.

THE West Coast Expressway will open its fifth section in two weeks which is also the first interchange that connects to another major highway.

This is the “biggest milestone” since the highway first opened to traffic four years ago, according to the concessionaire, as the new section – Section 6 – will start bringing in medium to long-haul traffic.

Long-haul traffic brings in higher toll revenue, WCE Holdings Bhd chief executive officer Lyndon Alfred Felix tells StarBizWeek.

The 21.8km Section 6 runs from North Bukit Raja to Assam Jawa, connecting to the Kuala Lumpur-Kuala Selangor Expressway or Latar.

The section was supposed to be completed late last month, however, it was delayed due to a strike by lorry drivers against the Road Transport Department’s enforcement operations.

WCE’s current four sections serve a more localised traffic, given that there is no direct connection to another highway.

Felix says that three more sections will open to the public in stages before the end of the first quarter of 2024 (1Q24).

The three sections are: Section 1 (connecting to South Klang Valley Expressway or SKVE), Section 2 (connecting to Shah Alam Expressway or Kesas) and Section 11 (connecting to North-South Expressway or PLUS).

“Section 11 will be the next game changer for us as it will bring in traffic from PLUS via Changkat Jering.

“Commercial vehicles from the north can gain easier access to Lumut, Port Klang and beyond, including to industrial areas in Banting.

“The West Coast Expressway’s flatter terrain, which bypasses the Menora Tunnel, and shorter route to Port Klang will benefit commercial vehicles.

“It is 30 minutes shorter to travel from Port Klang to Taiping via the West Coast Expressway,” says Felix.

Once the four sections are open, Felix expects the West Coast Expressway’s average daily traffic to more than double from the existing 60,000 vehicles.

WCE has projected an average daily traffic of 300,000 vehicles upon full completion of the 233km highway, which will have 11 sections in total.

The opening of Sections 1, 2, 6 and 11 within the next four months will provide clarity on how soon WCE can achieve its financial projections and begin dishing out dividends.

“That is one of the two factors (for dividend payout). The second factor is the full completion of the entire highway, expectedly by 1Q25 for now.

“We are on track to achieve breakeven about five to seven years from the full completion,” says Felix.

In the first quarter ended June 30, 2023, WCE saw a 10.3% year-on-year increase in revenue to RM116.04mil.

Toll collection from the four earlier sections contributed RM13.5mil to the total revenue.

However, the interest cost for completed sections of RM37.2mil dragged the bottom line into the red, with a net loss of RM26.41mil in the first quarter.

As per accounting standards, WCE can no longer capitalise the interest cost once each section is completed. The interest expense for these sections must then be charged to the statement of profit or loss.

Naturally, as more sections are completed, the interest costs will increase.

“However, the increase in toll revenue as more sections are opened with longer haul traffic will help to cover the interest expense,” explains Felix, pointing out that it is normal to incur losses in the early years of toll operations.

As earnings improve, Felix says that WCE’s high valuation currently will also be readjusted downward.

As of Nov 9, WCE’s price-to-earnings ratio (PE) stood at 26.54 times.

In comparison, the PEs of Gamuda Bhd, Sunway Construction Group Bhd and IJM Corp Bhd were 15.27 times, 18.66 times and 29.62 times, respectively.

The high PE of WCE was mainly due to the stock’s strong performance this year, after surging by almost 152% to 76 sen.

In fact, the WCE stock is the best performing construction counter on Bursa Malaysia year-to-date.

With a market capitalisation of RM2.26bil, WCE is currently the fourth largest listed construction company.

“The strong share price movement for WCE is the recognition from investors that this (highway) will become a strong asset or a cash-cow at some point in time.

“Investors also recognise the fact that WCE is probably the last big concession highway in the country.

“After Lingkaran Trans Kota Holdings Bhd (Litrak) was delisted, we are the sole infrastructure player left on Bursa Malaysia,” Felix says.

When asked whether he sees PLUS as a major competition to the West Coast Expressway as both highways serve many similar destinations, Felix disagrees.

He notes that the West Coast Expressway will complement PLUS in reducing congestion on the latter, especially in peak seasons.He points out that it makes more sense to use the West Coast Expressway to reach certain destinations, depending on where one starts the journey.

“If you want to go to Sitiawan from Klang, the West Coast Expressway will provide you with a shorter route,” according to Felix.

Appeal for assistance

However, for the West Coast Expressway to ease PLUS’ overcapacity issue, Felix appeals to the government for assistance to address “toll rate discrepancies” between both highways.

“When our highway’s toll rate was determined in 2013, it was benchmarked against PLUS’ rate, but at around 18% higher. This was because PLUS was supposed to adjust its toll rate, which unfortunately did not happen.

“And the fact that the then Pakatan Harapan government announced a 18% toll rate discount for PLUS made the toll rate gap wider.

“The third reason for the toll rate discrepancy is that our (West Coast Expressway) toll rates are on a step-up, which means it would be increased gradually three years after full completion and thereafter every five years.

“However, PLUS’ rates have been frozen after the 18% discount in 2020.

“So, as time goes by, the gap will get bigger,” he says.

Felix notes that the gap must be narrowed for more vehicles to consider the West Coast Expressway as an alternative to PLUS and to reduce congestion on the latter.Nevertheless, upon full completion, WCE expects a quarter of its traffic to come from commercial vehicles, given the proximity of the highway to key ports and industrial areas.

For example, close to Section 5 of the West Coast Expressway, Sime Darby Property Bhd and LOGOS SE Asia Pte Ltd is building a 177-acre freehold logistics development called the E-Metro Logistics Park.

Section 5, which opened to the public in Dec 2019, connects the New North Klang Straits Bypass or Shapadu and Bandar Bukit Raja (North) elevated intersection.

World’s largest companies

Meanwhile, close to Section 1 in Banting are some of the world’s largest paper manufacturing and recycling factories such as Nine Dragons Paper, Jingxing Holdings (M) Co Ltd and Best Eternity Recycle Technology Sdn Bhd.

Section 1 is scheduled to open within the next four months.

An industry observer says the three facilities alone handle about 15,000 containers a month.

WCE is 26.45% owned by IJM Corp, 25.59% by MWE Holdings Bhd and 9.32% by United Frontiers Holdings Ltd. MWE is owned by Tan Sri Surin Upatkoon, who was ranked as the 18th richest Malaysian by Forbes in 2022.

Meanwhile, United Frontiers is the investment vehicle of Tan Sri Pang Tee Chew, known for his snack brand, Mamee.

IJM Corp’s involvement in the West Coast Expressway started after it emerged as white knight to rescue the ailing Kumpulan Europlus Bhd (K-Euro) about 16 years ago.

IJM Corp emerged in K-Euro in order to gain exposure in the highway segment, considering that it had no toll concession business back then.

K-Euro, which is today known as WCE, was then controlled by Tan Sri Chan Ah Chye, who mooted the idea of the West Coast Expressway as early as 1997.

IJM Corp’s entry into K-Euro happened at a time when the latter was suffering from heavy losses and its associate Talam Transform Bhd was saddled with huge debt.