This article first appeared in The Edge Financial Daily on February 14, 2020
WCT Holdings Bhd
(Feb 13, 75.5 sen)
Upgrade to buy with an unchanged target price of 88 sen: Based on Bursa Malaysia’s announcement on Wednesday, WCT Holdings Bhd had received from its solicitors in Dubai, the Arbitral Tribunal’s Final Award in respect of the arbitration proceedings. To recap, AWCTJV, a joint venture (JV) between Arabtec Construction LLC (ATC) and WCT Bhd (Dubai branch), was awarded a contract to build the Nad Al Sheba Racecourse by Meydan Group LLC back in September 2007 for a contract sum of 4.6 billion dirhams. However, Meydan Group cancelled the construction contract in 2008. A year after, a subcontract awarded to Triumpher Steel Construction Group (TSC) to undertake certain steel-related works for the racecourse project was terminated. In 2015, the Dubai International Arbitration Centre (DIAC) ruled that Meydan’s cancellation and purported termination of the contract was unlawful, invalid and of no effect. Then in 2017, WCT’s JV with ATC faced a 107.7 million dirham claim filed by TSC. The Zhejiang-based contractor had filed a request for arbitration naming WCT Bhd (Dubai branch) and ATC as respondents.
The Arbitral Tribunal’s Final Award dismisses TSC’s claim against AWCTJV in its entirety and makes the following further ancillary orders:
TSC shall be responsible for 70% of the arbitration costs (already paid in full by TSC) while AWCTJV shall be responsible for 30% of the arbitration costs (partially paid by TSC). In this respect:
i) AWCTJV to reimburse TSC a sum of 218,098 dirhams (RM245,706) being AWCTJV’s portion of the arbitration costs paid by TSC; and
ii) AWCTJV to pay the balance of AWCTJV’s portion of the arbitration fees amounting to 378,860 dirhams directly to DIAC.
TSC is to bear its own legal costs; and TSC to pay to AWCTJV 601,208.60 dirhams for AWCTJV’s legal costs.
As at end September 2019, WCT’s outstanding construction order book stood at RM5.6 billion, which will provide an earnings visibility for the next three years. Post-announcement, we make no adjustments to our financial year 2019 (FY19/FY20) forecasts as the dismissed claim has no impact on WCT’s earnings.
Moving forward, we understand from WCT the project execution will continue to be their sole focus to ensure sustainability in revenue and profits. We anticipate a better contribution from Light Rail Transit Line 3 works on the back of better work progress in the first quarter of FY20. We are upgrading our call recommendation on the stock to “buy” from “neutral” previously to take advantage of the recent weakness in its share price. — MIDF Research, Feb 13