An arbitral tribunal in Dubai has awarded WCT MYR1.2bn in a contract dispute. We maintain our BUY call and earnings forecasts, but cut our TP by 18% to MYR1.64 (31% upside). WCT is a beneficiary of the booming local construction sector. We also see tremendous value in the landbank WCT has amassed in recent years, as well as its decent portfolio of REIT-able shopping malls.
Arbitrator rules in favour of WCT. An arbitral tribunal in the Dubai International Arbitration Centre has ruled in favour of WCT on the Nad Al Sheba Dubai Racecourse contract dispute with Meydan Group LLC (Meydan). The tribunal has found that Meydan’s cancellation and termination of the contract in 2009 were unlawful and ordered Meydan to pay WCT AED1.15bn (MYR1.2bn) for work done, repayment of performance bond, loss of profit and arbitrations costs. As at 31 Mar 2015, the carrying value in WCT’s books of the performance bond and contract receivables under the dispute was AED318m (MYR330m).
An end to the longstanding contract dispute? We are positive on the latest development that could mark an end to this longstanding contract dispute. However, we remain cautious as: i) we are unsure if Meydan could file an appeal, and ii) we understand from another Malaysian construction company – which won an arbitration award in the Middle East in 2013 – that collection could be challenging as it involves the procurement of an order from a local court, and there are many ways in which the opponent could “frustrate” the process. Assuming WCT is able to collect the amount from Meydan as per the tribunal’s decision, this would translate into gains of MYR870m or 47 sen per share.
Forecasts. We maintain our earnings forecasts. Risks to our view: i) job wins in FY15-17F falling short of our MYR1.5bn per annum assumption, and ii) weak demand for its property launches. Maintain BUY. WCT is poised to garner a slice of action in the booming local construction sector. We also see tremendous value in the landbank WCT has amassed in recent years, as well as its decent portfolio of REIT-able shopping malls. We cut our SOP-based TP by 18% to MYR1.64 (from MYR1.99) (see Figure 3), as we raise the discount to its property development RNAV to 50% from 20% to reflect the current cautious market sentiment.
Recommendation Chart
Source: RHB Research - 9 Jul 2015
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