WCT’s share price shows positive gap up from its trading range

Maintain neutral recommendation with a target price of RM1.61: WCT Holding Bhd’s share price shows a positive gap up from its trading range of RM1.31 to RM1.92 for the past 52 weeks, recording an increase of 26.8% gain to date from 2016’s lowest low of RM1.45 in May.

However, we are adopting a wait-and-see stance by adding resistance for the share price movements which is RM2.18 and, the third quarter ended Sept 30, 2016 (3QFY16) earnings results hitting its mark to review our estimates.

We maintain our view regardless of the seemingly attractive share price. The case for WCT has been compromised by the first half ended June 30, 2016 (1HFY16) earnings results lagged target, yet to materialise asset monetisation plan, debt ratio of 1.01 times which is higher than its KLCon Index peers of 0.68 times, an increase of 18% quarter-on-quarter (q-o-q) increase in payables eroding working capital and a drop of 236% decrease q-o-q decrease in cash flow of operations, discourage us from changing our view despite appealing share price level.

We have maintained our earnings estimates pending a possible asset sale, but have decided to maintain our numbers pending new management’s strategy and also due to being wary of negative earnings in upcoming 3QFY16/4QFY16 results.

Nonetheless, we acknowledge that the mall asset will replicate the steady stream of utility-like rental income from concessions but core competency of construction is still the better bet.

Furthermore, WCT is mired in misalignment from the optimal mix of revenue and operating income from key segments of malls, construction and property development. We are wary of WCT’s upcoming quarterly earnings instead of its share price levels. — MIDF Research, Nov 9

This article first appeared in The Edge Financial Daily, on Nov 10, 2016. Subscribe to The Edge Financial Daily here.