Our recent meeting with WCT’s management reaffirmed our optimism on the Group’s near-term outlook. Furthermore, we are enthused over positive developments within the Group including the much anticipated Subang airport regeneration project. More importantly, Management is cognizant of its debt load, and has plans to pare down its net gearing from 0.7x to 0.5x. Its degearing plans, among others include asset monetisation of non-core land and investment properties. Near term, we believe the Group should have enough capital given the recovery of most of its businesses and still has RM254.8m from the Middle East settlement which we understand is paid quarterly (about RM42.5m a quarter).

We also think its current valuation attractive, trading at 9x forward PE, below its 5-year average forward PE of 13x. All told, we maintain our earnings forecast for now as we have already assumed higher orderbook replenishment for FY23-25F. Reiterate Outperform with an unchanged sum-of parts TP of RM0.52.

• 4QFY22 results recap. Revenue rose by 10.8% YoY to RM466.5m, attributed to improvement across all business segments. Hence, WCT’s core net profit boast more than 100% improvement YoY to RM41.3m due to operational efficiency in the absence of MCOs.

• Lights on Subang Airport regeneration project. WCT will be partnering with Malaysia Airports Holdings (MAHB) to revamp the airport at an estimated project value of RM1.5bn over a period of 3 years. Assuming a 70% stake in the JV, this project will add approx. RM1.1bn to its current orderbook, making up 70% of our FY23 orderbook replenishment assumption. Considering a high single digit margin, this project is expected to contribute c. RM28m on average to the Group’s bottomline in FY24-26. That aside, we understand works will be carried out in 2 phases, beginning with Terminal 2 followed by Terminal 3. Both terminals will be demolished and rebuilt to accommodate ~3m passengers, as reported by the media. All in all, we anticipate official announcement regarding this project to be divulged soon, before 2QFY23. Recall, the Group owns 60% stake and operates SkyPark Terminal of the Subang airport. Back in 2021, WCT proposed to regenerate Subang airport into a city airport at an initial cost of RM3.7bn over a period of 10 years.

• Degearing plans to reduce debt. The Group is in the midst of negotiation on a land sale – subject land, we understand, is a freehold land measuring 52 acres located in Klang Valley. We estimate the disposal could fetch as high as RM270m-340m (based on RM120- 150psf) in market value. The proposed land disposal, we estimate, could bump up its earnings by RM68m-85m (assuming 25% PBT).

• Monetisation of mature investment assets. We understand that the Group is also exploring the option to monetise of its mature investment assets as a strategy to pare down its borrowings. We believe that the Group is already in talks to dispose its mall i.e. AEON Bandar Bukit Tinggi, Klang at a price tag in excess of RM600m. The deal includes a piece of 6-acre vacant land within the mall vicinity. As of 4QFY22, WCT’s net gearing is at 0.66x. Including perpetual sukuk, it would be around 0.87x. We approximate about RM845m is required to bring down its gearing ratio to its internal target of 0.5x excluding perpetual sukuk. Paradigm Malls in KL and Johor can also be monetised, which we understand, likely via outright disposal than the proposed REIT mooted few years ago. Total book value from these two assets are about RM1.8bn as at 31 Dec 2022.

Source: PublicInvest Research - 18 Apr 2023