WCT fixes warrants price, creates war chest to expand
Written by Yantoultra Ngui Yichen
Tuesday, 25 January 2011 11:31
KUALA LUMPUR: WCT Bhd has priced the warrants for its bond-cum-warrant fund-raising issue at 34 sen each, and fixed the exercise price at RM2.75.
The warrants are issued as part of the construction firm’s fund-raising exercise involving the issuance of RM600 million of five-year fixed rate bonds with up to 193.74 million warrants. The warrants are being offered to WCT shareholders by AmInvestment Bank and RHB Investment Bank on a renounceable basis of one warrant for every five shares held.
According to an announcement by WCT, the exercise price of the warrants has been fixed at RM2.75. This represents a 10% premium to the adjusted exercise price of RM2.50 for the existing 2008/2013 warrants. WCT also noted that the exercise price represents a discount of approximately 75 sen or 21.43% to the five-day volume weighted average market price of WCT up to and including Jan 19 of RM3.50. WCT’s shares traded at RM3.35 yesterday.
This implies that the soon-to-be issued warrants will immediately be “in the money”, as the warrant’s offer price plus exercise price equal to RM3.09, or 7.8% below WCT’s current share price. An analyst notes that assuming a conservative 10% premium for the warrants, they could be worth 93.5 sen each if WCT’s shares continue to trade at current prices. At that price, he estimates a gain of 59.5 sen per warrant, or 11.9 sen for each WCT share, based on the 1-warrant-for-5 shares offer.
The fund-raising exercise comes at a time when investors are bullish on WCT’s prospects and construction firms are gearing up for a larger slice of the infrastructure spending to be allocated under the 10th Malaysia Plan and Economic Transformation Programme. Reflecting this optimism, its shares have risen 23.6% over the past year.
WCT is currently trading at a forward price-to-earnings ratio (PER) of 18.82 times. With net assets per share of RM1.55 as at Sept 30, 2010, it trades at a price to book ratio of 2.16 times.
Unlike many construction companies, WCT’s net gearing is relatively modest at 36.5%. As a result, it also pays good dividends, with an estimated dividend yield of 2.99%.
As at Sept 30, the company had RM544.83 million in long-term borrowings, RM517.11 million in short-term borrowings and RM618.22 million in cash.
That translates into a net debt of RM443.72 million against shareholders’ funds of RM1.22 billion.
Apart from creating a large war chest for new projects, the RM600 million fund-raising exercise could also effectively refinance all of WCT’s short-term borrowings with long-term debt, if it wanted to.
Analysts are bullish on WCT. Out of the 17 analysts who released reports on its most recent results, 15 retained “buy” recommendations on the stock.
The consensus target price on the stock is RM3.82, according to Bloomberg data. This is 14% or 47 sen higher than yesterday’s closing price of RM3.35, which gave the company a market capitalisation of RM2.6 billion. For one, HwangDBS Vickers Research said WCT already had RM2 billion worth of new projects including the LRT extensions, Durkhan highway, other Middle East projects (Yas Island) and additional infrastructure jobs in Iskandar Malaysia and Sabah.
“We continue to like WCT as a cost-effective contractor that will benefit from a more open tender system,” it said in a research note to clients on Nov 19. And given its less diversified earnings base, it is also more leveraged to win new contracts.
Maintaining a “buy” with a target price of RM3.60 on the construction firm, HwangDBS said the revival of the Sabah dam project worth at least RM1 billion was also a wild card.
According to Maybank IB Research, WCT has submitted its bid for the Klang Valley LRT extension works but is lukewarm on its chances.
“We gather that the bids are very competitive, offering razor-thin margins,” the research house said in a note to clients on Nov 22. It maintains a “buy” on WCT with a fair value of RM3.75.
For the nine-month period ended Sept 30, WCT’s net profit declined 13.34% to RM99.26 million from RM114.55 million a year ago on the back of a 63.25% drop in turnover to RM1.27 billion from RM3.46 billion.
Earnings per share for the nine months stood at 12.61 sen versus 14.62 sen a year ago.
This article appeared in The Edge Financial Daily, January 25, 2011.
