WCT Holdings announced that it will form a joint venture (JV) with UEM Sunrise to develop freehold lands measuring about 608.63 acres in Bandar Serendah, Ulu Selangor, which WCT owns currently. UEM signed a conditional agreement to subscribe for new shares equivalent to a 50% stake in the JV for RM214.88m. WCT will retain a 50% stake in the JV. WCT will realise a RM205.32m gain from the deemed disposal of 50% equity in the lands (Bursa Malaysia).

Comment: We understand this is part of WCT’s plan to reduce its gearing by realising RM205m gain from the deemed partial disposal of lands (implied land sale price of RM16 psf) and de-consolidation of the property development project as it be re-classified as a joint venture post-exercise.

We estimate that the one-off land sale gain will lift our FY16E net profit by 140% to RM352m and reduce WCT’s net gearing to 71% from 77% as at 30 September 2015. The cash that UEM injects into the joint venture will go towards the development of infrastructure for the mixed development project with estimated gross development value of RM3bn, which is expected to launch in 2017.

WCT has a good working relationship with UEM Sunrise and has been a contractor for some of the latter’s projects in the past. The JV creates a win-win situation as UEM Sunrise has been looking to expand its property development exposure in Klang Valley as most of its current land bank is in Johor. We reiterate our BUY call on WCT with RM1.84 target price, based on 20% discount to RNAV.

Source: Affin Hwang Capital Research - 2 Dec 2015