- We maintain our HOLD call on WCT Holdings with a fair value of RM1.50/share, pegged to a 40% discount to its NAV. WCT has fixed the ex-date for the issuance of its new warrants on 20 August. The ex-date is 24 August.

- The new warrants follow the completion of the rights issue exercise last Friday that saw the issuance of 107mil new WCT shares on a 1-for-10 basis.

- The warrants are to be issued on a 1-for-5 basis, and would be the third in WCT’s books currently. The exercise price for the warrants has been set at RM2.08/share.

- Based on WCT’s share capital of 1.2bil, we estimate ~240mil new warrants to be distributed to WCT shareholders by way of a bonus issue. By extension, this could potentially raise up to c.RM500mil that can be redeployed for fresh capital requirements over the next few years.

- In our company update yesterday, we highlighted that WCT is expected to raise c.RM107mil from the rights issue, at RM1.00/share.

- While this could provide a short-term lift to WCT’s balance sheet, we expect WCT’s upcoming cash commitments to remain sizeable given its ongoing new property investment commitments (e.g. new Paradigm shopping malls in KL and Johor).

- Furthermore, while the landmark arbitration ruling in favour of WCT (RM1.2bi) for the Meydan Racecourse project will undoubtedly boost its cash flow, the actual claims process could take up to a year.

- On the other hand, we believe the weak consumer and retail sentiments post-GST implementation could pose a challenge to the group’s reported plans to monetise its property investments via a REIT by end-2016.

- To be sure, the local press recently reported that c.18% (53 tenants) of the Paradigm Mall in Kelana Jaya have moved out about two months ago following the mall’s first tenancy renewal cycle. The vacancies constitute c.8% of the mall’s NLA.

- Likewise, we prefer to only turn constructive on the stock if it manages to resurrect its orderbook prospects, particularly on the local front.

- Year-to-date, the group has only secured one contract in Qatar, i.e. the RM1.2bil Lusail Development Project (WCT’s effective stake: ~RM847mil). At the moment, we estimate the group’s external order book to be RM2.8bil (local: 58%, Qatar: 42%).

Source: AmeSecurities Research - 11 Aug 2015