News

• Proposes private placement. WCT has proposed to undertake a private placement of up to 140m new shares, representing 10% of its existing share base. It intends to submit the placement application to Bursa within 3 months and complete the exercise within 6 months upon approval.

Comments

• 2nd round of placement. To recap, WCT proposed to undertake a placement of up to 125m new shares in Jan. The exercise was completed in April with 80% (100.5m shares) of the placement taken up while Bursa’s approval for the balance 20% (24.5m shares) has since lapsed.
• Funds to be raised. Assuming an indicative placement price of RM1.73 (VWAP from 9 to 13 Oct) and a full take up, WCT will be able to raise RM242.2m.
• Utilisation of proceeds. The placement proceeds will be used for debt repayment (RM100m), working capital (RM140.2m) and placement expenses (RM2m). It is estimated that the repayment of borrowings will result to interest savings of RM4.8m annually. The working capital requirements are mainly for its construction segment, in which WCT has managed to secure RM1.7bn worth of jobs YTD (FY16: RM1.4bn) from 3 packages of the LRT3.

Risks

• Derailment of its de-gearing plans.

Forecasts

• Unchanged pending more clarity on the timeline and take up of the placement.
• We estimate that the placement would reduce its net gearing from 86% (2QFY17) to 72% on a proforma basis.

Rating

• Maintain BUY, TP: RM2.29
• Albeit with a cautious stance, we are turning positive on WCT given its results recovery and de-gearing plans that has been laid out by its new top management.

Valuation

• Our SOP based TP of RM2.29 implies FY17-18 P/E of 23.2x and 20x respectively.
• While the implied P/E valuations at our TP appear steep, one must bear in mind that WCT has a significant surplus land value (i.e. market value less BV), backing 69% of its market capitalisation.

Source: Hong Leong Investment Bank Research - 17 Oct 2017