Investment Highlights

• We raise our FY17-19F forecasts by 8%, 6% and 5% respectively, but maintain our FV of RM1.88 and HOLD call. WCT's 1HFY17 core net profit of RM75.6mil beat our forecast at 63% of our full-year forecast, but met market expectations at 51% of full-year consensus estimates. Contrary to our expectations, the performance of WCT's key investment properties had not deteriorated as sharply despite the stiff competition from new malls flooding the market.

• 1HFY17 core net profit grew 41% YoY as higher construction profits (on improved margins) more than offset lower property development earnings.

• During a recent analysts briefing, WCT guided for RM2- 3bil new construction jobs in FY17F (vs. our more conservative assumption of RM2bil annually in FY17- 19F). YTD, it has secured new jobs worth a total of RM206mil. It is eyeing station packages of the MRT2, viaduct package of LRT3 and high-rise/integrated building jobs. Also, WCT is submitting a bid for the KLKlang bus rapid transit (BRT) project.

• For the monetisation of its shopping malls, WCT is considering a listing under a new REIT called WCT REIT, comprising Paradigm Mall in Petaling Jaya (70%-owned), BBT Shopping Mall and Premiere Hotel in Klang (both wholly-owned). WCT intends to raise about RM400mil by paring down its stake in the REIT with an expected market value of RM1.1bil, to just under 50%. WCT also hopes to raise about RM500mil from the disposal of landbank considered “non-strategic” in Klang Valley outskirts, such as Bandar Bukit Tinggi (Klang), Rawang and Serendah. It has resorted to "re-pricing" (price cuts of up to 10-15% for certain products) to help clear unsold property stock. It is confident of achieving RM500mil sales in FY17F (vs. RM281mil achieved in FY16). We estimate that this proposed monetisation exercises, if they materialise, could reduce WCT’s net debt and gearing of RM2.5bil and 0.9x as at end-FY16, to RM1.5bil and 0.6x respectively.

• We maintain our view that WCT will ultimately be turned into the flagship PLC of Tan Sri Desmond Lim, via the injection of Malton (a sister company of WCT, with its prized asset being Pavilion Bukit Jalil) and Lim’s private business ventures including Pavilion Kuala Lumpur and Pavilion Damansara Heights. This could potentially double WCT’s market capitalisation to above RM4bil. However, we believe it is premature to tell if the exercise will be value-enhancing to WCT’s existing shareholders, as that depends largely on the structure and pricing of the assets and new shares to be issued pursuant to the corporate exercise.

Source: AmInvest Research - 25 Aug 2017