KUALA LUMPUR (Aug 17): Analysts are positive on WCT Holdings Bhd’s proposed land disposal as this will reduce the group’s net gearing.

Hong Leong Investment Bank Research’s analyst Edwin Woo said in a note today the construction group’s recent Serendah land disposal is a positive surprise. Regardless of the timing of the receipts, proceeds from the Meydan dispute and the proposed sale would reduce WCT’s net gearing to 78% from 110% as at the first quarter ended March 31, 2021 (1QFY21). 

Last month, WCT said its wholly-owned subsidiary WCT Bhd (WCTB) and Meydan Group LLC had entered into a settlement agreement under which the latter will pay WCTB AED726.57 million (about RM828.25 million) in a full and final settlement linked to the Nad Al Sheba Dubai Racecourse contract dispute between both parties.

“Beyond this, the company could draw on its RM544 million worth of property inventory to nurse its balance sheet back to a stronger state,” said Woo.

He added WCT has a remaining land bank earmarked for future development and for sale measuring 263 acres.

According to Woo, WCT may book a non-core gain of RM122 million in its third quarter ending Sept 30, 2021 (3QFY21) results.

Further de-leveraging may come from sales of property inventory and idle land, he added.

While maintaining WCT’s earnings forecast, Woo upgraded WCT to "buy" and revised upward its target price on the counter to 59 sen from 56 sen.

“With the share price pullback coupled with this de-gearing catalyst, the stock looks ripe for a rebound trading at a mere price to book value of 0.24 times.

“At such valuations, we reckon negatives such as restrictions and political uncertainties could be largely baked in,” he said.

WCT announced yesterday that it was disposing of 12 pieces of vacant freehold land in Serendah, Selangor for RM214.3 million cash. The estimated gain from the disposal of the 603 acres of land is RM45.53 million.

MIDF Research’s analyst Ummar Fitri is also positive on the land disposal as WCT’s net gearing will be improved to 0.6 times from 0.66 times.

In a note today, he revised upward his estimates for WCT’s top line to RM2.01 billion for FY21, to RM2.15 billion for FY22, but retained its earnings forecast.

He also maintained "buy" on WCT with an unchanged target price of 66 sen.

“We remain sanguine on the group’s earnings outlook, predicating on its strong current outstanding order book and prompt resumption of work operations as reflected in its strong rebound in earnings in 1QFY21 despite movement restriction,” he said.

At 12.18pm, WCT was unchanged at 51.5 sen, valuing the group at RM730.34 million.