WCT announced that it has secured a RM754.83m contract for infrastructure and roadway works at Tun Razak Exchange (TRX) from 1MDB Real Estate Sdn Bhd. Construction period is 687 days. WCT is also acquiring 71,986 sq ft (775,002 sq ft maximum permissible gross floor area (GFA)) of land at TRX for RM223m.

Comment: As highlighted in our report dated 12 October 2015, WCT is one of the frontrunners for the TRX project and winning the project does not come as a surprise to us. Prospects for WCT to replenish its order book are good as it is in a good position to win more local contracts. Our earnings forecasts assume that WCT will secure RM1.8bn new contracts in FY15-16 and clinching this TRX contract means that 42% of our new contract assumption is in the bag. So no change in our earnings forecasts but the project improves earnings visibility with its order book rising to about RM4.3bn.

WCT’s acquisition of a 1.65-acre land bank in TRX comes as a surprise as it has not ventured into the KLCC area for property development projects in the past. The land acquisition price of RM3,098 psf or RM288 per GFA (plot ratio of 10.8x) is in line with the recent price paid by Affin Holdings for another 1.24-acre land in the area for RM255m or RM4,699 psf or RM310 per GFA (plot ratio of 15.2x) for a Grade A office building. WCT plans to develop a high-end serviced apartment tower with complimentary retail components at gross development value of about RM1.1bn on the land (indicative selling price of RM1,419 psf).

The payment for the land is set off against the corresponding milestone payment of the contract sum under the construction contract. This reduces the impact on WCT’s net gearing. Overall, we believe this development is positive for WCT as it will replenish its order book and acquire a piece of prime land in Kuala Lumpur. We reiterate our BUY call on WCT with RM1.84 target price, based on a 20% discount to RNAV

Source: Affin Hwang Capital Research - 20 Oct 2015