ALLIANCEDBS Research has reiterated its buy call on WCT Holdings Bhd but with a lower sum of parts (SOP)-based target price (TP) of 85 sen due to its higher net gearing and weakening in the property business.
“Our lower TP now factors in lower target multiple of 8x negative two standard deviations (-2SD) below mean for its construction business versus 12x or -1SD below mean previously.
“We think this may better reflect the potential delays in job flows due to Covid-19. We leave our discount to revised net asset value (RNAV) at 50% for its property development business and 20% for its property investment business unchanged,” the research house said in a note on April 16.
Like other infrastructure/property-related stocks, the research house said WCT has come under heavy selling pressure, plunging by some 48% year to date (YTD). This has been exacerbated by the selling pressure of two majority institutional shareholders.
At the current price, the stock trades at an FY21 price-to-earnings (PE) of 6x and price/book value (P/BV) of 0.2x, which is too cheap to ignore. Appearance-wise, its balance sheet is also on a strong footing now (net gearing of 0.6x) with the issuance of its Perpetual Sukuk Musharakah Programme that has raised RM617 mil with a target to issue another RM183 mil in 2QCY20 where the proceeds will be used to redeem RM800 mil medium-term notes expiring in 2020.
The company has also bought back 12.4 million shares YTD (price range of 25-77 sen per share) while its chairman Tan Sri Lim Siew Choon has acquired a staggering 48 million shares. Its deputy managing director also bought 4.5 million shares in March.
WCT’s current tender book of more than RM5.8 bil comprises RM3.6 bil for local building works and RM2.2 bil for civil/infrastructure works. “Our forecast assumes a balance of RM300 mil new wins in FY20F which in our view is achievable,” AllianceDBS said.
The counter traded 4.35% higher at 46.5 sen before the midday break, giving it a market capitalisation of RM673.31 mil. — April 16, 2020
