Yesterday, WCT proposed to issue 140.0m new shares to raise funds as part of its de-gearing exercise. We are neutral on this new placement exercise which has always been part of management’s de-gearing strategy. Furthermore, we believe that management would only proceed with the new placement in the event that its Warrants-D are not fully converted by year-end. No changes to FY17-18E core earnings. Maintain MP, TP: RM1.83.

News. Yesterday, WCT proposed a new placement of up to 10% of its existing issued and paid-up share capital, which entails the issuance of up to 140.0m new shares that would potentially raise RM235.2m based on its last closing price of RM1.68.

A renewal… We were not entirely surprised with WCT’s move in applying for the approval in principle for the proposed new share placement as equity fund raising has always been part of WCT’s de- gearing strategy. To recap, WCT made a proposal to issue 125.0m new shares in January and successfully placed out 100.5m shares with the remaining 24.5m shares unissued and the approval had since lapsed. Hence, management has now proposed for a new placement of up to 140.0m shares as a move to renew the lapsed placement.

Preparing for a rainy day… We believe this fresh proposal for 140m shares which is substantially higher than the lapsed unissued 24.5m placement shares could be management’s back-up plan to raise fund from the market in case the outstanding Warrants-D (122.7m shares, exercise price: RM1.71) that could raise up to c.RM210.0m upon conversion are not fully converted when they expire in December.

Earnings unchanged. No changes to our FY17-18E core earnings, pending for further clarity on the timeline of the placement exercise.

Outlook. Its outstanding order-book currently stands at c.RM6.0b providing earnings visibility for the next 2.5-3.0 years. As for its property division, its unbilled sales stands at RM487.0m with 1.5 years visibility and management intend to continue with their re-pricing strategy to clear its existing inventories amounting to GDV of RM644.0m.

Maintain MARKET PERFORM with an unchanged SoP-driven Target Price of RM1.83 as we did not factor in the potential dilution from its newly proposed placement exercise pending clarity on the placement timeline given that the previous placement exercise had lapsed. Our TP implies FY18E PER of 18.5x in line with the big boys’ range of 18.0- 20.0x which we are comfortable with especially for concession owners.

Source: Kenanga Research - 17 Oct 2017