WCT - Proposes 3-20 bonus issue plus free warrants Buy

- Maintain BUY on WCT with an unchanged fair value of RM3.05/share/share – pegged to a 15% discount on its Sum-Of-Parts value.

- WCT announced on Bursa Malaysia yesterday evening, the following proposals: -  Bonus issue (3-for-20) of up to 180 mil new ordinary shares of RM0.50 each; -  Bonus issue of up to 240 mil new WCT warrants (1-for5) -  Increase in authorized share capital of WCT (from RM800mil to RM1.1bil) 

- Prior to this, WCT has two other outstanding warrant issues. The 2008/2013 issue has ~ 139 million in outstanding warrants at an exercise price of RM2.50/share.

- On the other hand, the more recent 2011/2016 issue has ~ 157 million outstanding warrants with an exercise price of RM2.75/share. 

- Assuming a maximum scenario, the proposed bonus and free warrants will nearly double WCT’s enlarged share capital to 1.6 billion from around 823 million as at 30 August 2012. 

- Based on our initial estimates, the warrants would results in a dilution of ~21%-23% to WCT’s FD FY13F-14F EPS. 

- Flipside, we opine that any dilutive impact would likely be staggered over five years– with an added sweetener in the form of free warrants being thrown in. 

- This comes amidst a rejuvenation in WCT’s prospects going forward. Orderbook visibility has certainly perked up WCT has raked in approximately RM2bil worth of new jobs (FY11: RM187mil), including an RM1bil Oman expressway project secured just last month. 

- WCT has also boosted its war chest by a RM1bil proposed bond issue that have been earmarked for more valueaccretive deals – including more landbank purchases.

- Most recently, the group acquired a plot of commercial land (~ 12 acres) together with an abandoned shopping mall in Tebrau, Johor for RM180mil.

- WCT remains one of our two top large-cap picks within the construction sector. Valuations are undemanding at FY12F-14F PEs of 10x-13x.

Source: AmeSecurities