Investment Highlights

• We maintain our forecasts, FV of RM1.88 (Exhibit 1) and HOLD call.

• WCT has been awarded by Prasarana a viaduct package of LRT3 (Package GS03) for RM840mil, to be completed within the next 33 months. This is the second key contract WCT has secured in FY17, boosting its YTD job wins to RM1.05bil and its outstanding construction orderbook to RM5.36bil (Exhibit 2). We are keeping our forecasts that assume job wins of RM2bil annually in FY17-19F. We view this development positively.

• Also, WCT has roped in CCCG Overseas Real Estate Pte Ltd (Chinese partner), a Singapore unit of China-based real estate group CCCG Real Estate Holding Ltd, to spearhead the development of its freehold land measuring 1.65 acres in Tun Razak Exchange (TRX). To recap, WCT acquired the land from KLIFD Sdn Bhd (a unit of 1MDB) in 2015 for RM223m or RM3,100 psf (plot ratio of 10.8x), as compared with three similar land sales at TRX during the same period at: RM2,800 psf (plot ratio of 10.5x), RM4,700 psf (plot ratio of 15.2x) and RM2,300 psf (plot ratio unknown). The acquisition coincided with the award by 1MDB Real Estate Sdn Bhd (another unit of 1MDB) of a MYR754.8m TRX infrastructure contract to WCT. WCT had said that it intended to develop a high-end serviced apartment tower with retail components with a GDV of RM1bil on the land.

• The Chinese partner will subscribe to an 80% stake in WCT Precious Development Sdn Bhd, the owner and developer of the 1.65-acre land in TRX, for RM200mil. This effectively values the land in its entirety at RM250mil which is comparable to the initial cost of RM223mil. We view this development positively too. Given its majority stake of 80%, the Chinese partner will drive the development, financing and marketing of the project. This will spare WCT, which is undergoing a major de-gearing exercise, from having to raise additional debt to fund the land cost (we understand that WCT has thus far only settled 10% of the purchase consideration), as well as working capital to kick start the project. We believe the Chinese partner could do a much better job in marketing the project given its network of international clientele.

• We maintain our view that WCT will ultimately be turned into the flagship PLC of Tan Sri Desmond Lim (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 - 30 Aug 2017