Picture shows The Paradigm Mall in Kelana Jaya, Selangor, owned by WCT holdings.
KUALA LUMPUR: CIMB Equities Research said construction-property company WCT is delaying its construction initial public offer (IPO) while the real estate investment trust (REIT) initiative will be rolled out earlier.
The research house said on Friday these were among the highlights of the post-1Q16 results briefing by WCT management.
“New route to de-gearing via property asset monetisation and private placement in 3Q16. This could cumulatively raise RM500mil to RM800mil (US$125mil to RM200mil). Order book growth driven by highways in medium term. Positive newsflow in 2H16,” it said.
CIMB Research said WCT guided for stronger construction pretax margins in 2H16 via flow-through of infra billings was intact. This was to assure investors of solid construction earnings visibility, backed by its high RM4.4bil (US$1.1bil) order book at end-1Q16.
“However, WCT’s RM600mil (US$150mil) FY16 property sales target is questionable given the soft market,” it said.
CIMB Research said there was greater conviction on its RM2bil order win target, with most of the jobs on the radar being infra works. There was more emphasis on domestic highway jobs, which will comprise the majority of the group’s RM2bil (US$498mil) total wins target for this year.
A positive surprise was WCT winning two packages for Dash highway and four packages for SUKE highway. It will also submit tenders for four packages of the Pan-Borneo highway.
“WCT is deferring its construction IPO from 4Q16 to 2Q17 due to certain unresolved requirements and to sort out administrative issues. This was a slight disappointment, as the IPO was widely expected to come with a special dividend sweetener.
The potential RM1bil to RM1.5bil (US$250mil to US$375mil) market cap listed company will emerge after the REIT for its two malls. Management now targets 1Q17, instead of 4Q16, for the potential RM1.2bil (US$299m) REIT deal (RM700mil to RM750mil proceeds).
To address its gearing, CIMB Research said WCT was already in advanced talks with several undisclosed buyers to divest selected property assets (buildings and landbank) in the medium term.
“We suspect that this could raise up to RM500mil (US$125mil). It has identified more than one key investor for a 5%-10% private placement, which aims to raise up to RM100mil. This would largely make up for the shortfall in intended proceeds from WCT’s Warrant C (30% conversion to date).
“Around RM800mil total proceeds from the new plans (including land deal with UEM Sunrise
) have been earmarked for partial repayment of total borrowings, which stood at RM2.7bil (net gearing of 0.8 times) at end-1Q16).
“WCT targets to gradually pare down net gearing to around 0.6 times prior to IPO and REIT in 1H17. We think that net gearing will reduce further to 0.4-0.5x in FY17 but have not imputed this into our forecasts. A stronger balance sheet could pave the way for new concession-type deals,” it said.
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