- We maintain our HOLD call on WCT Holdings with an unchanged fair value of RM1.80/share (35% discount to NAV). WCT announced that the arbitral tribunal under the Dubai International Arbitration Centre (DIAC) has ruled in favour of the group in a dispute with the Meydan Group for the Nad-Al-Sheba Racecourse project.

- Back in February 2009, WCT had initiated arbitration proceedings against Meydan for terminating a RM4.6bil contract to build the Nad Al-Sheba Racecourse.

- The contract was then awarded to a JV between WCT and Arabtec Construction LLC on a 50:50 basis. Based on the latest tribunal decision, it was ruled that: - Meydan’s cancellation and purported termination of the racecourse contract was unlawful, invalid and of no effect; and - Meydan was not entitled to call on the WCT-Arabtec JV’s performance bond, and must repay the same.

- The tribunal has ordered Meydan to pay WCT a total of AED1.1bil (~RM1.2bil) for work done; repayment of performance bond; loss of profit; damages and interests; arbitration fees; and legal costs.

- As at 31 March 2015, the carrying value of performance security deposits and contract receivables under dispute in WCT’s books was c.AED318mil (RM330mil). We believe this could be related to the back-to-back payment for nominated subcontractors of the project.

- The landmark judgement is positive news for WCT, as it brings closure to this legal wrangle after a protracted period. Furthermore, WCT will get to recoup up to RM1.2bil for this project (~RM1.06/share) and significantly improve its FY15F net gearing to ~5% vs. an estimated 56% currently.

- We leave our earnings unchanged for now pending more clarity on the finer details of the ruling (e.g. actual amount owing to WCT, net of subcontracted portions, requisite P&L, and/or balance sheet adjustments).

- From now on, investors should refocus on WCT’s order book prospects. As at 31 March, the group’s submitted tender book was ~RM18bil (RM15bil from the Penang Transport Master Plan) with another RM6bil being prepared.

- For the FY to-date, WCT has only secured a solitary job in Qatar, although it is sizeable at RM1.2bil (effective 70% stake: ~RM847mil). On the other hand, plans to unlock its commercial assets via a REIT could reportedly be delayed until next year given the cautious market sentiment.

Source: AmeSecurities Research - 9 Jul 2015