Investment Highlights

• We maintain our forecasts but cut our SOP-based FV by 17% to RM1.38 (Exhibit 1) (from RM1.66) as we increase the discount to its property RNAV to 40% (from 25%) to reflect the prolonged slowdown in the property market. We maintain our HOLD call.

• Confirming news reports in Feb 2018, WCT has proposed to acquire a 60% stake in Subang Skypark Sdn Bhd (Subang Skypark) for RM44.6mil cash. Subang Skypark holds the concession to operate the commercial/retail area, a car park area, a business aviation centre as well as a “hangarage” complex in Subang Skypark Terminal 3, Sultan Abdul Aziz Shah Airport in Subang.

• WCT said that the acquisition allows it to diversify into the business of ground handling for private aviation. WCT also sees development potential in the car park area. It intends to turn it into a mixed commercial project.

• We understand that Subang Skypark is reasonably profitable at the operating level, but its profitability at the net level is insignificant after accounting for interest expense arising from some RM80mil debt.

• We estimate that the acquisition will increase WCT’s net debt and gearing of RM2.76bil and 0.88x as at end-Dec 2017, to RM2.88bil and 0.92x respectively.

• We are at best only neutral on WCT’s latest acquisition. While we see value in the commercial/retail area in Subang Skypark Terminal 3 that may be poised for positive rental reversion backed by rising passenger traffic, and the car park area with development potential, these may take time to realise. On the other hand, the acquisition cost coupled with the consolidation of Subang Skypark’s debt will add further strain on WCT’s balance sheet.

• We maintain our view that WCT's construction division has turned the corner with the award of key infrastructure projects such as the MRT2, LRT3 and Pan Borneo Highway recently. However, its property division is not spared the downturn in the property market and is weighed down by some RM550mil unsold stock (1.8x its property sales of RM305mil in FY17). WCT could be missing the window to list its matured investment properties under a REIT at good valuations against a backdrop of rising interest rate and surging supply of retail space in the market. All these, coupled with WCT's proposed placement of new shares of up to 10% of its existing paid-up capital, are likely to cap the upside in WCT's share price over the near term.

Source: AmInvest Research - 3 Apr 2018