News 

Buys  land  in  Serendah.  WCT  announced  that  it  has entered  into  a  sale  and  purchase  agreement  to  acquire  4 parcels  of  vacant  freehold  land  measuring  220.7  acres  in Serendah  for RM115.4m.    

Adjacent  to  existing  land.  The  4  parcels  of  land  are located  adjacent  to  WCT’s  existing  land  in  Serenda h  which measures  462  acres  (Figure  #  2).  Thus  far,  nothing  has been developed  on this parcel of existing land.

Comments 

Still  at  early  stages.  We  were given to understand  that the 4  new  parcels  of land will be combined with the existing one (total:  683  acres)  which  will  eventually  be  developed  into  a township. No GDV figures were shared as  it  has yet to come up  with  anything  concrete.  However,  the  proposed  township will  somewhat  be  akin  to  its  existing  Bandar  Bukit  Tinggi in Klang.  Maiden launche  is only targeted  sometime in FY16.

No  significant  rise  to  net  gearing.  On  a  proforma  basis, we  estimate  WCT’s  net  gearing  to  rise  from  the  current 57.9% to 63.1% as a result of the acquisition.

Risks

• Execution  risk,  rising  material prices, project implementation delays, property  sector slowdown  and political risks.

Forecasts

We  take this opportunity to cut our FY14-15 earnings by 5% and  3%  after  factoring  weak  property  sales  which  only amounted  to  RM245m  in  1H  vs .   the  company’s  full  year target of RM1.2bn.

On  a  side  note,  orderbook  replenishment  has  also  been weak this year with only RM342m secured  YTD.

Rating

HOLD

• We  maintain  our  HOLD rating on  WCT.  Despite  muted outlook  for  both  its  construction  and  property  divisions,  the saving  grace  comes  from  its  growing  base  of  investment properties  (Aeon  BBT,  Paradigm,  Gateway & klia2  and Premiere  Hotel).

Valuation

• Although  our  earnings  has  been  cut,  our  TP  remains relatively  unchanged  at  RM2.29  (previous:  RM2.26)  as  we alter  our  valuation from  P/E  based  (at  14x)  to  SOP  method (at  a  10%  discount).  This  implies  FY14-15  P/E  of  15x,  at a slight discount to its 3 year mean of 16x.

Source: Hong Leong Investment Bank Research - 21 Oct 2014