WCT is disposing 602.5 acres of land in Ulu Selangor for RM214.2m which is expected to net a post-tax gain of RM45.5m and take up to 9 months to complete (i.e. by May 2022). We view this transaction positively as WCT has no immediate plans for this land and its net gearing will ease further to 0.91x (from 1.10x as of 1QFY21). Post sale, we increase FY22E earnings by 54% to RM129m to factor in the gains in disposal. Keep OP with unchanged TP of RM0.64 pegged to 0.3x PBV.

Disposing all of its Ulu Selangor land for RM214.2m. WCT has entered into an SPA with MDCon (Simpang Empat) S/B to dispose 12 pieces of freehold land (602.5 acres) located at Serendah, Ulu Selangor for RM214.3m (or RM8.17/sf). This disposal is expected to net WCT a post-tax gain of RM45.5m and will take up to 9 months to complete (i.e. by May 2022).

Net gearing to come off further. We view this disposal positively as WCT has no immediate plans for this large plot of land and the sale will further reduce their net gearing from 1.10x in 1QFY21 to 0.91x (refer back table for calculations; note that we treat perpetual sukuk as borrowings instead of equity in our net gearing calculations).

Moving forward, we foresee the quantum of its future land sales to decline given that WCT only has a handful of non-core lands remaining in their books. These include lands located in: (i) Klang (79 acres), (ii) Medini, Johor (39 acres), and (iii) Inanam, Kota Kinabalu (22 acres). By our estimates, these lands could fetch a cumulative value of c.RM550m-RM700m.

Earnings estimates. Post this land sale, we increase FY22E earnings by 54% to factor in the RM45.5m gain. Land sales are treated as core earnings given that WCT has been consistently selling lands for the past four years.

Maintain OP and TP of RM0.64 based on unchanged FY22E PBV of 0.3x (-1.5SD). At current PBV valuation of 0.23x, we find WCT’s valuations appealing in view of potential earnings rebound post pandemic.

Source: Kenanga Research - 17 Aug 2021