Reference is made to the previous announcements made by WCT on the acceptance of the LoA issued by PNB Merdeka Ventures SB in respect of the main contract work for a shopping complex jointly by its whollyowned subsidiary, WCT and TSR Capital (TSR) and the incorporation of WCT TSR SB in the equity ratio of 51:49 to undertake and complete the contract. We have gathered that there would be no material impact to WCT’s gearing and earnings from this development. Thus, we maintain our Outperform call on WCT with an unchanged SOP-based TP of RM0.50, pegged at 15x PER given WCT’s competence within the infrastructure construction space.

• Details. WCT, TSR and the JV have on 3 July 2023 entered into a Supplemental Shareholders Agreement (SSHA) for the acquisition of the entire 49% issued and paid-up share capital of the JV by WCT from TSR and the mutual termination of the Shareholders Agreement dated 18 Jan 2019. The SSHA entails the acquisition of 1.47m ordinary shares in the JV, representing 49% of the total issued ordinary shares of the JV, by WCT from TSR for a total cash consideration of RM1.47m. WCT shall assume full responsibility for the completion of the contract and TSR shall exit the JV.

• Our view. Remaining works from its then-partner – TSR, amounted to c. RM161m on top of RM189m remaining works in WCT’s existing orderbook. We surmised that the incremental amount to orderbook (+4.9% to RM3.5bn) has no material impact to the Group’s net earnings as the project margin is deeply eroded by high material prices. Note that the job was awarded in late-2018, prior to peak material prices. That aside, there is also no impact to WCT’s gearing for the cash purchase of 49% stake in the project, valued at RM1.5m from TSR. All in all, the job is expected to be completed in 1QFY24 as Management has secured a fresh extension of time (EOT) from the project owner.

Source: PublicInvest Research - 4 Jul 2023