• Focus on de-gearing remains crucial

• Property business to focus on selling existing inventory

• Construction business to replenish more building jobs but will be client-specific

• Maintain HOLD and TP of RM2.00

What’s New

De-gearing balance sheet remains a priority. There was a new representative at WCT’s analyst briefing. Mr. Ng Chee Kiet who was formerly from the Pavillion group has been appointed Director of Corporate Strategy of WCT since December 2016. He addressed the audience for most of the question and answers segment of the briefing. He spoke largely on a few key issues: i) de-gearing the balance sheet; ii) repricing strategy for the property business, and iii) replenishing more building jobs for its construction business.

Still committed to reducing gearing levels. WCT is in a net debt position of RM3.0bn (net gearing of 1.1x) as at 31 December 2016, inclusive of debt at the JV level (Paradigm Mall and Gateway@KLIA2). Besides the sale of Ascent Paradigm to EPF for RM347m and the proposed private placement of up to 10% (to be done in tranches), the group is also exploring monetising its two malls, AEON mall in Klang and Paradigm, and also selling some land bank. We understand besides the obvious avenue of injecting both malls valued at c.RM1.2bn into the Pavilion REIT, WCT is speaking to some funds to sell both malls where it may remain as the operator or still hold a minority stake. It expects to firm up a deal by mid-2017. The group has also earmarked a few plots of land for sale which are largely in Bandar Bukit Tinggi in Klang and Sungai Buaya in Serendah (608 acres). This could raise up to RM500m over a span of 24 months. The Sungai Buaya land is the same plot of land where UEM Sunrise aborted the JV agreement and was supposed to raise RM215m for WCT.

New strategy for property business. WCT closed the year with property sales of just RM281m vs its target of RM600m. WCT has engaged a new marketing head and the strategy going forward is to focus on selling existing inventory by offering more incentives and rebates. There will not be any major launches in 2017. We understand there will in total RM1bn in inventory by end-2017 which incorporates ongoing products which have yet to be completed and assumes no sales generated. WCT is targeting to sell half of this or RM500m which is its sales target for FY17F. It will also be reviewing the development plans for its OUG project which will be concluded in 3Q17.

Refocusing on building jobs? WCT’s construction business was barely profitable in 4Q16 (ex forex gain) in spite of a RM5.3bn orderbook (including internal jobs). This is because some of its building jobs had to be repriced which offset the higher margin infrastructure works. There were also some upfront costs incurred for Pan Borneo Sarawak and MRT Line 2. It is guiding for RM2bn new orders for FY17F which will be all from local jobs. The total tender book is at RM2.5bn while there is another RM2.5bn-3bn worth of tenders which are at the preparatory stage. Of its RM5.2bn orderbook now, 72% is from engineering and infrastructure, 10% from local building jobs and 18% from Qatar. In spite of the lower margins for building jobs, WCT will be focusing more resources on this area. But this will be more specific to stronger end clients such as building jobs for Tun Razak Exchange, Petronasrelated works and other government entities. We understand there are also potential building jobs from Pavillion Bukit Jalil (1.8m sq ft) and Pavilion Damansara (1m sq ft) where WCT may also explore.

Source: Alliance Research - 27 Feb 2017