Investment Highlights

• We maintain our UNDERWEIGHT call, forecasts and FV of RM0.54 based on 8x FY19F FD EPS, in line with our benchmark forward target P/E of 8x for small-cap construction stocks.

• WCT’s 70%-owned Segi Astana Sdn Bhd (Segi Astana), the holding company for its gateway@KLIA2 airport mall, has served a notice of arbitration on Malaysia Airports Holdings Bhd (Malaysia Airports). Segi Astana is claiming for RM70mil in damages from Malaysia Airports arising from the delay in the commencement of the

gateway@KLIA2 mall.

• Concurrently, Malaysia Airports has served a notice of arbitration on Segi Astana and WCT, claiming from them fixed monthly charges of RM958,849 for the supply of chilled water for the cooling system of the

gateway@KLIA2 mall from Sep 2013 (which shall accumulate to RM63.3mil by Mar 2019 based on our estimate).

• We are unable to predict the outcomes of the arbitrations as their merits are unclear. Assuming WCT is to win the first arbitration, the RM70mil damages shall increase WCT’s NTA by 5sen or 2.2% to RM2.31. Assuming WCT is to lose the second arbitration, the RM63.3mil charge shall erode WCT’s NTA by 4.5sen or 2% to RM2.22.

• We are mildly negative on the latest development. While the financial impact of these arbitrations on WCT is insignificant, we are more concerned about the working relationship between WCT and Malaysia Airports that has now appeared to be less cordial. Also, an interesting aspect of these arbitrations is that Malaysia Airports is effectively in legal dispute with its own associate as Malaysia Airports is the 30% minority shareholder of Segi Astana.

• WCT has another venture with Malaysia Airports. WCT owns a 60% stake in Subang Skypark Sdn Bhd which holds the concession from Malaysia Airports to operate the commercial, retail and car park areas, and an aviation hub for private airlines in the Sultan Abdul Aziz Shah Airport in Subang.

Source: AmInvest Research - 26 Mar 2019