Date: September 19, 2024
Broker Name: CGS International Securities Malaysia Sdn. Bhd.
Shariah Compliance and ESG Score
- Shariah Compliance: WCT Holdings is identified as Shariah-compliant, which may appeal to certain institutional and individual investors.
- ESG Combined Score: WCT Holdings has an ESG score of C+, reflecting moderate environmental, social, and governance practices.
Proposed Paradigm REIT for Degearing
- REIT Offering: WCT Holdings (WCT) proposed the Paradigm REIT, which will include three assets valued at RM2.4 billion. This move aims to degear the company’s balance sheet.
- Assets Included: The REIT will include three prominent retail properties:
- Paradigm Petaling Jaya
- Paradigm Johor Bahru
- AEON Mall in Klang
These malls collectively have a gross floor area (GFA) of 2.9 million square feet and boast occupancy rates between 98% and 100% as of 1H24. The combined net profit from these assets for FY23 was RM51 million.
Financial Structure of the REIT
- New Share Issuance: The Paradigm REIT transaction will be financed through the issuance of 1.6 billion new units, priced at RM1 per unit, and RM837 million in cash.
- Restricted Offer for Sale: The issuance includes a restricted offer for sale, where 560 million shares (35% of the total) will be made available to the public. This offering will be divided as follows:
- 195 million shares will be offered to existing WCT shareholders on a 1-for-8 basis.
- 28 million shares will be offered to eligible directors and employees.
- 32 million shares will be open to the general public.
- 305 million shares will be available to institutional investors.
Ownership and Listing Plans
- Post-IPO Ownership: Following the listing, WCT will retain a 60.7% effective interest in the Paradigm REIT. The company will account for this holding as an associate under REIT management accounting rules.
- Completion Timeline: The IPO is scheduled to be completed by the first quarter of 2025.
Use of Proceeds and Debt Reduction
- Debt Reduction Strategy: Proceeds from the REIT will primarily be used to reduce WCT’s borrowings, leading to an estimated annual interest savings of RM50 million. WCT’s net gearing ratio is expected to drop from 0.75x (as of June 2024) to 0.3x post-listing.
Valuation and Dividend Yield
- Indicative REIT Value: The indicative equity value of the Paradigm REIT is estimated at RM1.6 billion, with a net property income (NPI) yield of 6-7%.
- Dividend Requirements: WCT believes that a dividend yield of over 6% will be necessary to make the REIT attractive to investors.
Stock Rating and Target Price
- Stock Rating: The broker maintains an “Add” rating for WCT Holdings, indicating a favorable outlook for the company.
- Target Price: The target price remains unchanged at RM1.52, implying a 47.6% upside from the current share price of RM1.03.
- Valuation Basis: The target price is derived from a sum-of-parts (SOP) analysis. WCT is currently trading at a price-to-book value (P/BV) of 0.4x for FY25F, which is less than one standard deviation below its mean since 2006.
Key Catalysts and Risks
- Catalysts for Rerating: The broker highlights several potential catalysts for a positive rerating, including improved earnings, new order wins, and increased property sales.
- Downside Risks: Risks include potential earnings disappointments, lower property sales, and fewer new order wins.
Key Financial Projections (2024-2026)
- Revenue Growth: Expected to grow by 38.8% in FY24, followed by growth of 9.5% in FY25 and 7.2% in FY26.
- Net Profit: Expected to reach RM50.78 million in FY24, RM71.66 million in FY25, and RM87.27 million in FY26.
- Core Earnings Per Share (EPS): Forecasted EPS growth is 41.1% for FY24, followed by 21.8% in FY25.
Shareholding Structure
- Major Shareholders:
- Tan Sri Desmond Lim Siew Choon holds 25.5%.
- AmanahRaya Trustees hold 5.8%.
Market Performance
- Current Market Price: RM1.03.
- Price Performance: Over the last 12 months, WCT’s stock has appreciated by 92.5%.
