The  Securities  Commission  (SC)  has  filed  a  suit  against  WCT  Holdings Bhd  (WCTHG)  Deputy  Managing  Director  (DMD)  Goh  Ching  Liong  for insider trading in shares of WCT Bhd, which was delisted in July 2013 after a restructuring that transferred operations into  the current listed outfit. Two other individuals, ie, Chan Soon Huat and Leong Ah Chai also face insider trading allegations. Goh is alleged to have communicated the material nonpublic  information  regarding  the  cancellation  of  the  Nad  Al  Sheba  Dubai Racecourse  project  to  Leong  who  has  thereafter  disposed  of  WCT  Bhd shares.

Comments:  The SC suit is against the DMD in his personal capacity and hence there is no legal liability risk to the company. In the worst case that the DMD is found guilty, he will be fined and not be allowed to hold any directorships in public-listed companies. The DMD oversees the strategic business direction, especially for the construction operations of WCTHG. We  understand  that  the  company  has  a  succession  plan  in  place  to replace the DMD and do not expect any disruptions to its operations if the DMD is discharged due to a possible insider trading conviction. We believe WCTHG’s  Executive  Director  Liang  Kai  Chong,  who  has  been  with  the company  since  1997,  has  the  experience  to  take  over  the  DMD’s responsibilities if Goh is discharged.

The  stock  may  see  short-term  weakness  due  to  reputational  risk  of  this event  to  the  company.  Fundamentally,  we  like  WCT  given  its  good prospects  to  expand  its  construction  order  book  and  do  not  expect  any material  impact  from  this  development.  We  reiterate  our  BUY  call  with RM2.12 target price, based on target FY16 PE of 14x.

Source: Affin Hwang Capital Research - 2 Jun 2015