Good Foreign Interest

We hosted a WCT roadshow for 1.5 days in Singapore. There was good interest with WCT management meeting 7 foreign institution investors. Most investors were surprised by the second proposed private placement of up to 10% of share capital. We understand the private placement was proposed on concern that most of the outstanding WCT-WD warrants are not converted when it expires on 11 December 2017. WCT targets to reduce its net gearing to 0.5-0.6x from 0.85x currently, by mid-2018. We reiterate our BUY call with TP of RM2.46, based on 10% discount of RNAV.

Surprise Private Placement

WCT’s proposed private placement of up to 140m new shares (10% of share capital) came as a surprise to most investors. This was less than 7 months after raising RM178m from an earlier private placement of 100.5m new shares at RM1.77 on 29 March 2017. Timing of issuance could be 2% of share capital by end-2017 and another 8% of share capital from April 2018 onwards at the earliest due to the limit of private placement issuance equivalent to 10% of share capital within a year. At an indicative price of RM1.73, WCT could raise up to RM240m in net proceeds. If the remaining WCT-WD warrants are exercised at RM1.71/share, raising about RM200m, this could alleviate the need to issue shares under the private placement.

WCT REIT Listing in Mid-2018

WCT is scheduled to open its Paradigm Johor Bahru (JB) Mall on 28 November 2017 with tenants secured for about 83% of net lettable area (NLA). WCT may consider injecting the mall into the proposed WCT REIT to be listed in mid-2018, if the mall does well after opening. This could potentially double the total asset size of the REIT to RM2bn. WCT is close to completing negotiations with AEON to extend the BBT Mall lease for another 5 years, potentially improving the yield on the asset.

Property Sales Pick Up

WCT achieved RM228m sales for 9M17 with bookings worth RM49m pending sales confirmation. However, WCT still has inventories of properties worth RM644m at end-2Q17, which could balloon to RM1bn due to construction completion by end-2017 if not sold. The company is pushing sales by improving its marketing strategy and giving higher rebates.

Maintain BUY

We believe the correction in the share price provides an opportunity to accumulate the stock in light of improving long-term prospects. WCT is one of our top sector BUYs with a 12M TP of RM2.46. Key risks to our positive view would be slower property sales and construction execution risks.

Source: Affin Hwang Research - 27 Oct 2017