WCT Holdings Bhd
(April 24, RM1.79)
Maintain buy with an unchanged target price (TP) of RM2.12: After declining to a low of RM1.38 following uninspiring new contract wins and operating results, WCT Holdings Bhd’s share price has rebounded and broken out of the RM1.40 to RM1.60  range. More new contract wins should lead to a further rerating. We expect the share price to rerate higher given the March 15 Qatar contract win and improved prospects for local jobs. Another RM1 billion of new contracts would enhance its billing visibility until financial year ending December 2017 (FY17E) and FY18E (estimate).

Property demand remains slow and a lower sales target has been fixed for 2015. But the group has accumulated a large land  bank of almost 2,200 acres (890.31ha) at a low cost and is hence well-positioned for a rebound.

WCT has also accumulated a portfolio of property investments and concession assets, some of which are “REITable” as early  as 2016. Official approval for the extension of the concession period for Gateway@klia2 would enhance valuation by as much as RM300 million, based on our estimate.

We maintain our “buy” rating with an unchanged TP of RM2.12, based on an unchanged 14 times calendar year 2016E earnings  per share (EPS). The proposed rights issue would be EPS-dilutive but shareholders have been offered a low rights issue  price of RM1 and bonus warrants. The conversion price of the existing Warrant C and Warrant D will be reduced to  RM1.54 and RM1.71, respectively. Key downside risks to our rating include further delays in the award of jobs in Malaysia  and overseas, sharp spikes in construction costs and further government tightening measures affecting property demand. — Affin Hwang Capital, April 24

This article first appeared in The Edge Financial Daily, on April 27, 2015.