Investment Highlights

• We maintain our forecasts, HOLD call and FV of RM0.92, based on 10x FY19F FD EPS, in line with our benchmark forward PE of 10-12x for mid-cap construction stocks.

• Following the dismissal by the Dubai Civil Court of Cassation (the highest civil appeal court in the UAE) of a civil suit brought by Meyden Group LLC against WCT, WCT is now in a better position to enforce an arbitration award of AED1.15bil (RM1.2bil) by the Dubai International Arbitration Centre in 2015 against Meyden Group LLC in relation to the cancellation of the Nad Al Sheba Racecourse project in Dubai, UAE, in 2009.

• Assuming Meyden Group LLC is to pay up, the arbitration award translates to 71 sen per share on a fully diluted basis. It would reduce WCT’s net debt and gearing of RM3.0bil and 0.95x as at 31 March 2018, to RM1.8bil and 0.56x respectively.

• While the latest development is positive to WCT, we believe the episode is far from over as the question remains if Meyden Group LLC will play by the book. We hold the view that until and unless the payment is received, the arbitration award remains a paper judgment.

• Also, to recap, in Feb 2017, the 50:50 WCT–Arabtec Construction LLC JV received a request for arbitration from the Dubai International Arbitration Centre, filed by its steel work subcontractor for the Nad Al Sheba Racecourse project in Dubai, UAE, i.e. Triumpher Steel Construction Group LT. It is claiming AED107.7mil (RM130.6mil) for works done plus costs.

• We maintain our view that WCT’s construction division is not spared the weakened prospects for job wins as the government cuts back on public infrastructure spending, particularly, mega projects on grounds of fiscal prudence. As local contractors compete for a shrinking pool of new construction jobs in the market, they tend to undercut each other, resulting in razor-thin margins for the successful bidders. The competition will intensify further with the introduction of a more transparent public procurement system under the new administration. Not helping either are the prolonged downturn in the local property market and the glut in retail space that weigh down on WCT’s property development and investment divisions.

Source: AmInvest Research - 25 Jul 2018