Journey to Wealth
WCT Berhad - Proposes bonus issue and free warrants
News WCT has announced multiple proposals, including a bonus issue of 3-for-10 shares and free warrants on the basis of 1-for-5 shares. On top of that, WCT has also proposed to increase its authorised share capital from 1.4b to 2.0b and to amend its Memorandum of Association. The completion of these proposals is expected to be finalised by 4QCY12.
Comments The proposed bonus shares will be issued on the basis of 3 new shares for every 20 existing shares and is expected to increase its outstanding shares by 15% (+180m new shares).
WCT has also proposed a bonus issue of free warrants (warrant D), as well, on the basis of 1 free warrant for every 5 existing shares. Assuming the full conversion of the other warrants (warrant B and C), WCT will issue up to 240m of new warrants D.
In conjunction with the 2 proposals, the conversion price of the remaining warrant B and C will be revised lower from the current conversion price of RM2.50 to RM1.85 and RM2.75 to 2.04 respectively.
The proceeds will be utilised for its working capital. Based on the illustrated conversion price for its warrant D at RM2.25, WCT is expected to raise up to RM540m cash (excluding warrant B and C).
In summary, we are positive on this news as we expect the exercise to increase its trading liquidity and strengthen its balance sheet from a net gearing of 0.4x (as at June 2012) to a net cash position, which will bode well for the execution of its property development projects and to finance bigger construction projects.
Outlook The construction division will remain as the main contributor to its earnings and we expect WCT to secure more construction contracts in the near-term, i.e. Petronas RAPID and TRX earthworks with a combined value more than RM2.0b.
Forecast No changes in our FY12-13E estimates.
Rating Maintain OUTPERFORM
We are maintaining our OUTPERFORM recommendation for WCT, which offers an attractive upside (+22%) from the current price.
Valuation We maintain our Target Price at RM3.93 (ex-bonus price is at RM3.09) based on SoP valuation.
Risks Delays in both its ongoing projects and awards of ETP projects.
Source: Kenanga
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