News

• Buys land in Klang. WCT announced that it has entered into a Sales & Purchase Agreement with Elite Asia Pacific to acquire 3 parcels of land in Klang from the latter totalling 7.9 hectares for RM118m.

Comments

• More landbanking. This move by WCT is not surprising as management previously guided that it will continue to embark on more landbanking activities this year. The acquisition price translates to RM139 on a psf basis which we regard as fair given past transactions of between RM100-200 psf in Klang.

• Next to existing developments. The said lands are located adjacent to WCT’s current Laman Greenville development as well as its 32 acres of commercial land (see # Figure 1). This gives WCT the option to combine the said lands with its neighbouring commercial land for a potential integrated development with GDV of RM2.7bn. The proposed LRT3 is expected to pass through this said development.

• Impact on gearing. The acquisition would increase WCT’s net gearing from the current 72.3% to 77.5% on a proforma basis. However, after including the cash influx from the impending 1 for 10 rights issue which is expected to raise RM143m, we estimate the proforma net gearing to be 71.2%.

Risks

• EPS dilution resulting from the rights issue.
• Stiff competition and uncertain implementation timing for its domestic construction tenders and weak property sales.

Forecasts

• No changes to our forecast pending further details on the development such as launch schedule.

Rating

HOLD TP: RM1.73 ex rights

Maintain our HOLD rating on WCT. While new construction job wins have been strong YTD, this is merely to compensate for the weak showing in the past 2 years where orderbook replenishment has lagged behind burn rate. Furthermore, the property segment faces challenges given the softening market.

Valuation

• Our ex rights TP of RM1.73 is based on the SOP method, implying ex-rights FY15-16 P/E of roughly 16x.

Source: Hong Leong Investment Bank Research - 29 May 2015