INVESTMENT HIGHLIGHTS

• Proposed shares placement

• Placement to improve financial headroom

• Reduction in debt level necessary

• Overall, we maintain our SELL recommendation with an adjusted TP of RM1.47 per share

Proposed shares placement. WCT has proposed shares placement amounting up to 140m shares representing 10% of its issued share capital. The exercise is intended to raise up to RM242.2m, assuming at an indicative price is RM1.73. Pursuant to this, WCT has completed an earlier share placement exercise in April seeing 100.4m shares changing hands at RM1.77 per share thus raising c.RM177.8m.

Placement intended to improve financial headroom. Should WCT achieves to raise the notional amount of RM242.2m based on RM1.73 per share, 41.2% of or RM100.0m would be deployed to reduce borrowings for on-going construction projects i.e. LRT3, MRT2 and Pan Borneo Highway. Apart from that, the outstanding RM100.2m or 41.4% would be used to improve working capital. The remaining RM2.0m would be used to offset expenses related to the proposed shares placement. We believe that the share placement exercises are necessary for WCT to maintain ample financial headroom.

Reduction in debt level necessary. The share placements would also minimizes the overhang for WCT’s direction and risks profile from its sizeable orderbook. The on-going exercise would reduce debt-to-equity from 1.06x to 1.048x. WCT’s orderbook swelled recently to c. RM5.9bn due to the award of LRT3’s Package GS02 (Merchant Square-Suria Damansara, 2.9km). To recap, WCT’s working capital has decreased from RM1.18bn in 1HFY16 to RM879m (-25.6%) in 1HFY17 comparatively. Hence, it is critical for WCT to improve debt level and working capital in order to reduce construction delays and avoids cost overruns.

Recommendation. Hence, we reaffirm our SELL recommendation with an adjusted SOP-based TP of RM1.47 per share.

Source: MIDF Research - 17 Oct 2017