Investment Highlights

• We maintain our forecasts, SOP-based FV of RM1.38 (Exhibit 1) and HOLD call. This follows the Kuala Lumpur High Court’s judgment in favour of WCT in its dispute with tenant AEON Co. (M) Bhd (AEON) with regards to the extension of the tenancy of AEON Bukit Tinggi Shopping Centre.

• The court has ruled that: (1) there was no renewal of the lease upon its expiry on 23 Nov 2017; (2) AEON will have to vacate the property; (3) AEON will have to pay WCT damages calculated from 23 Nov 2017 to the date of vacant possession, as well as RM10,000 legal cost. AEON intends to file an appeal against the decision as well as an application for stay of execution.

• We are slightly positive on the latest development. We believe that the court’s decision has strengthened WCT’s bargaining position vs. AEON, assuming that there is still a chance that the parties would attempt to reach an amicable out-of-court settlement.

• To recap, the key stumbling block for the parties to mutually agree to a 5-year extension upon the expiry of the initial 10-year lease which expired on 27 Nov 2017, is AEON’s rejection of WCT's plans to take back part of the mall's open car park space (main-road fronting, with an LRT3 station under planning next to it) for property development.

• In any case, given the experience accumulated by WCT in running shopping malls (Paradigm Mall in PJ, Gateway@KLIA2 and Paradigm Mall in JB) in recent years, we believe WCT will be able to find a replacement for AEON as the anchor tenant for the mall, if need be. For FY17, we estimate that the mall contributed RM32mil or 11% of WCT’s total EBIT.

• 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 Sarawak Highway recently. However, its property division has not been spared the downturn in the property market and is weighed down by some RM550mil of 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 May 2018