News

• Sells office block. WCT announced that its 70% owned subsidiary, Jelas Puri, will be selling The Ascent office block at Paradigm PJ with a leaseback agreement to the Employees Provident Fund (EPF) for RM347m. EPF is also a 30% shareholder in Jelas Puri.

South

Comments

• Asset monetisation. We are not entirely surprised by this news as the sale of The Ascent was one of the proposed de gearing exercises set forth by management. The office block currently houses WCT’s headquarters which will be leased back following the sale to EPF.

• Net gearing to reduce. The sale of The Ascent will reduce WCT’s net gearing from 81% to 68% on a proforma basis.

• More de-gearing ahead? Previously, management guided that its other de-gearing plans include the sale of Paradigm Service Apartments (RM150m) and REIT-ing its investment properties (RM1.2bn). Following the recent entrance of Tan Sri Desmond Lim (TS Lim) as the largest shareholder (20%) of WCT, we reckon that the potential monetisation of its investment properties could involve injecting them into PREIT (BUY, TP: RM1.95). The latter is also held by TS Lim with a 28% stake.

Risks

• A significant change in WCT’s strategic direction (if any) as brought forth by its new major shareholder would be a potential risk to watch out for.

Forecasts

• Proceeds from the sale of The Ascent will largely be used to pare down debts, we reckon. This will help to reduce WCT’s finance cost. Nonetheless, our earnings forecast is unchanged for now, pending clarity on the timeline of disposal.

Rating

Maintain BUY, TP: RM2.12

• Earnings rebound and sizable orderbook aside, the recent deal involving a new major shareholder, which was done at RM2.50/share (30% premium to last close), could provide some upside excitement.

Valuation

• Our SOP based TP of RM2.12 implies FY16 P/E of 22x but this reduces to 16x in FY17 once earnings kick in. Valuation is also backed by RM1.6bn in net surplus value of its land (RM1.31/share).

Source: Hong Leong Investment Bank Research - 14 Nov 2016