News WCT has
announced multiple proposals, including a bonus issue of 3-for-10 shares and
free warrants on the basis of 1-for-5 shares. On top of that, WCT has also
proposed to increase its authorised share capital from 1.4b to 2.0b and to
amend its Memorandum of Association. The completion of these proposals is expected
to be finalised by 4QCY12.
Comments The
proposed bonus shares will be issued on the basis of 3 new shares for every 20
existing shares and is expected to increase its outstanding shares by 15%
(+180m new shares).
WCT has
also proposed a bonus issue of free warrants (warrant D), as well, on the basis
of 1 free warrant for every 5 existing shares. Assuming the full conversion of
the other warrants (warrant B and C), WCT will issue up to 240m of new warrants
D.
In
conjunction with the 2 proposals, the conversion price of the remaining warrant
B and C will be revised lower from the current conversion price of RM2.50 to RM1.85
and RM2.75 to 2.04 respectively.
The
proceeds will be utilised for its working capital. Based on the illustrated
conversion price for its warrant D at RM2.25, WCT is expected
to raise up to RM540m cash (excluding warrant B and C).
In summary,
we are positive
on this news
as we expect the exercise to
increase its trading liquidity and strengthen its balance sheet from a net
gearing of 0.4x (as at June 2012) to a
net cash position, which will bode well for the execution of its property development
projects and to finance bigger construction projects.
Outlook The construction division will remain as the
main contributor to its earnings and we expect WCT to secure more construction
contracts in the near-term, i.e. Petronas RAPID and TRX earthworks with a combined
value more than RM2.0b.
Forecast No changes in our FY12-13E estimates.
Rating Maintain OUTPERFORM
We are
maintaining our OUTPERFORM recommendation for WCT, which offers an attractive upside
(+22%) from the current price.
Valuation We
maintain our Target Price at RM3.93 (ex-bonus price is at RM3.09) based on SoP
valuation.
Risks Delays in both its ongoing projects and awards
of ETP projects.
Source: Kenanga
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