WCT Holdings Bhd
(Nov 26, RM1.84)
Upgrade to “buy” with a lower target price (TP) of RM2.20: During the analyst briefing yesterday, management indicated that it intends to bring forward, to 2015, the real estate investment trust (REIT)-ing of its three existing malls which have an estimated total asset value of RM2 billion.

Property sales have picked up in the second half of year 2014, and 2015 property sales would be supported by the goods and services tax implementation in April 2015.

The management believes its property margins should recover in the financial year ending Dec 31, 2015 (FY15) but would still be lower than FY13 property margins due to a challenging property market.

Elsewhere, its construction margins would be lower due to a higher proportion of building works.

We are positive on the REIT exercise as it would enable WCT to unlock the value of its mature retail malls and its gateway@klia2 mall’s concession.

Proceeds from the REIT would also ease the financing of its new shopping malls. In addition, shareholders could benefit via a distribution of shares in the REIT.

After reflecting the lower property and construction margins, our FY15 to FY16 net profit forecasts are lower by 10% to 8% respectively. Our new sum-of-parts-based TP is RM2.20 (-2%).

WCT’ share price has fallen 17% since we downgraded the stock to a “hold’ in August 2014. We believe the slow property sales and lacklustre construction job wins have been priced in.

WCT is tendering for RM4 billion worth of jobs and its order book would also be supported by internal construction works. WCT is also restrategising its future property launches to tailor to the current market demand.

We upgrade WCT to a “buy” (from “hold”). — Maybank IB Research, Nov 26

This article first appeared in The Edge Financial Daily, on November 27, 2014.