News  WCT announced yesterday that it had entered into a conditional sale and purchase agreement (SPA) with

Matad Sdn Bhd for the acquisition of 4 pieces of land totaling 220.7 acres located in Seksyen 20, Bandar Serendah, Hulu Langat for a total cash consideration of RM115.4m (RM12.0 psf).

 These 4 pieces of land are adjacent to its existing 462 acres Serendah land. (refer overleaf).

Comments  We are Neutral to Positive on the news as: (i) the price tag of the land is relatively cheap i.e. RM12 psf vis-à-vis market price of nearby land around the area of about RM15-RM30psf, (ii) once the acquisition is completed, WCT will own 682 acres of landbank in Serendah. This is sufficient for the group to build another township with affordable range of products,  (iii) the land has good accessibility being connected to the new Sg Buaya interchange from North-South Highway, (iv) post acquisition, WCT’s net gearing level will likely increase to 0.63x from 0.58x, higher than its average peers’ gearing level of 0.3x-0.6x. This could cap WCT from incurring large capex in the foreseeable future (e.g. landbanking activities).

 While the project is still at the preliminary stage, there was no specific amount of GDV mentioned in the announcement. Nonetheless, management mentioned that it intends to build a township and mixed commercial development as was the case of its successful township project in Bandar Bukit Tinggi, Klang.

Outlook  WCT is currently facing challenging times due to: (i) disappointment in property sales, (ii) declining trend in construction margins, and (iii) intense competition in the construction industry.

 Nonetheless, the group’s tenderbook is still healthy at RM4.6b driven by some major projects namely Kwasa Damansara earthworks (RM1.0b), IKANO building in Cochrane (RM700m), WCE, bridges and roads in Qatar (RM1.0b). Forecast  Unchanged, pending more details on GDV and timing of the project’s launch.

Rating Maintain MARKET PERFORM

 Although WCT is currently facing challenging times, the group might surprise with new contract flows in the near-medium-term given its strong tenderbook of RM4.6b.

Valuation  Maintain our SoP-based Target Price of RM2.21, implying Fwd-PER of 16.5x FY15 earnings, in line with its 3-year Fwd-PER mean.

Risks to Our Call Higher-than-expected orderbook replenishment

 Higher-than-expected construction margins

 Higher-than-expected property sales.

Source: Kenanga