- We maintain our HOLD recommendation on WCT Holdings with an unchanged fair value of RM1.80/share, pegged at a 35% discount to its estimated Sum-Of-Parts (SOP) value.

- WCT announced plans to embark on capital-raising proposals that entail the following:

(i) Renounceable rights issue of up to 143mil new WCT shares (1-for-10); and

(ii) Bonus issue of up to 315mil new WCT warrants (1- for-5).

- The entire exercise is scheduled to be completed by 3Q15.

- Assuming an indicative rights issue price of RM1.00/share, WCT is expected to raise up to RM143mil.

- The group further disclosed that proceeds from the rights issue will be mainly utilised to repay its suppliers (RM41mil) and sub-contractors (RM65mil).

- On a fully-diluted (FD) basis, our initial calculations indicate an EPS dilution of 14%-16% for FY15F-17F on an enlarged share capital of 1.9bil (~73%).

- Consequently, WCT’s FD fair value is estimated to be RM1.51/share.

- We are not entirely surprised by WCT’s latest move to raise fresh capital. In our recent reports, we had flagged our concerns with WCT’s increasingly leveraged balance sheet, as it moves to increase exposure to property investments.

- While WCT had managed to bag a RM1.2bil job in Middle East recently (effective 70% stake: RM847mil), we believe competition remains fairly intense on the local front. We retain our FY15F new orderbook assumptions of RM1bil for now.

- The group’s property pre-sales appear to have toned down, particularly in Johor, with ~RM894mil worth of new launches targeted in FY15F vs. a new sales target of RM650mil (FY14: 461mil).

- Likewise, while we expect proceeds from the rights issue of RM143mil to improve WCT’s FY15F net gearing position to 47% from 56% previously, any further delays in its reported plans to inject malls into a REIT, or launches of its new property investments would likely strain WCT’s cash flows further.

Source: AmeSecurities