AmWatch - WCT Holdings : Goes ex-rights HOLD, 10 Aug 2015

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WCT Holdings : Goes ex-rights   HOLD

We maintain HOLD on WCT Holdings with a revised fair value of RM1.50/share (40% discount to NAV) following the completion of its rights issue exercise. Our new fair value incorporates the following: (i) Issuance of 107mil new shares arising from the 1-for-10 rights issue; and (ii) upcoming issuance of new warrants (1-for-5) after the rights issue. WCT is expected to net c.RM107mil from the rights issue, which were issued at RM1.00/share. By the same token, the exercise price for the new warrants is RM2.08/share and could potentially raise a further RM500mil.

Under a minimum scenario, WCT had earlier earmarked a bulk of the RM107mil proceeds from the rights issue to repay its suppliers (RM40mil) and subcontractors (RM65mil). Specifically, these monies were to be equally apportioned to two key projects – the infrastructure works at RAPID Pengerang, and the new Ikano outlet in Jln.Cochrane. While this provide a short-term lift to WCT’s balance sheet, we expect WCT’s upcoming cash commitments to remain sizeable given its ongoing new property investment commitments (e.g. new Paradigm shopping malls in KL and Johor).

While the landmark arbitration ruling in favour of WCT (RM1.2bi) for the Meydan Racecourse project will undoubtedly boost its cash flow, the actual claims process could take up to a year. The reported plans by the group to monetise its property investments via a REIT by end-2016 could help.

We nevertheless believe that actual viability of such a proposal – and hence its targeted valuations – remains to be seen amid weak consumer and retail sentiments post-GST implementation. Above all, we reckon that WCT has to start building up its job momentum again, especially on the local front. Year-to-date, the group has only secured one contract (the RM1.2bil Lusail Development Project: WCT’s effective stake: ~RM847mil). At the moment, we estimate the group’s external order book to be RM2.8bil (local: 58%, Qatar: 42%).  

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