- We maintain our HOLD call on WCT Holdings with a lower fair value of RM1.38/share (previous: RM1.50/share) on a steeper discount to its NAV (from 40% to 45%). This accounts for a challenging operating outlook for its property division and muted construction wins. 1H15 earnings fell 14% YoY on lower property sales and contribution from Middle East projects in 2Q15. Results are in line at 48% of our forecast but only 39% of consensus. It would have been lower if not for a large swing in forex gains (RM43mil) vs. 1H14’s RM7mil loss.
- Despite raising RM107mil from a rights issue earlier this month, we expect WCT’s cash burn from upcoming property investment commitments to remain heavy. Furthermore, the actual claims process for the Meydan Racecourse project could take up to a year, we believe.
- Yet, any plans to establish a REIT to house its property investments by end-2016 look more challenging in light of weaker retail sentiments and the dampening prospects of a rise in US interest rate.
- To be sure, the local press recently reported that Paradigm Mall PJ saw vacancy rates of ~8% (18% of tenants) during the first review of its tenancy agreements about two months ago. We nevertheless draw comfort that pre-tenancy rates for the Paradigm Mall JB (NLA: ~1.2mil sf) have reached 50% with four major anchors signed up (targeted completion: 2016).
- WCT appears to have cut its FY15F new property sales target from RM650mil to RM584mil. New property sales for 1H15 was RM241mil (unbilled: RM593mil). On a brighter note, the medium cost (MC) apartments launched at Bandar Parklands (RM221psf; GDVRM45mil) achieved a take-up rate of 63% within a month of its targeted launch in May 2015. This reflects continued demand for affordable homes. The next batch of MC cost apartments (GDV:RM60mil) will be rolled out next month at a similar base price of RM221psf.
- WCT needs to juggle between boosting long-term property investment income and the need to rejuvenate its new construction order book. The latter is vital to reignite investor interest in the stock. For the FY-todate, WCT has only secured one job in Qatar (effective 70% stake: ~RM868mil) against an external order book of RM2.5bil as at end-May 2015. The group's tender book stands at RM4.7bil (which includes TRX, KL118, West Coast Expressway, KWASA Damansara civil works, LRT 3, MRT 2, Kota Kinabalu water supply scheme, Gemas-JB double tracking and hydro dams in East Malaysia).
Source: AmeSecurities Research - 21 Aug 2015
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