WCT shares rise on planned REIT spin-off, analysts expect lower debt levels

• Shares of WCT have more than doubled so far this year, tracking strong gains in the construction sector, and partly boosted by news of the planned REIT listing in recent months.

KUALA LUMPUR (Sept 19): Shares of WCT Holdings Bhd (KL:WCT) rose on Thursday as investors lauded a planned listing of a real estate investment trust, while analysts praised the move that would help pare the company’s debts.

WCT rose as much as five sen or nearly 5% to RM1.08. The stock was trading at RM1.07 at noon, giving the company a market capitalisation of RM1.6 billion. More than 12 million shares changed hands so far.

At least one analyst upgraded the stock. There are now five “buy” calls and four “hold” following Kenanga’s upgrade on Thursday. The consensus 12-month target price is RM1.32, according to Bloomberg, implying a potential return of over 23% from its last price.

“We are positive on this move, as the REIT listing could initiate a re-rating exercise,” said Kenanga Investment Bank, which lifted its rating on WCT to “outperform” and raised the target price to RM1.43.

WCT is expected to cut its borrowings with proceeds from the REIT listing and save RM50 million from interest expenses annually, and more than halve its net gearing to 0.33 times, the house noted.

Shares of WCT have more than doubled so far this year, tracking strong gains in the construction sector, and partly boosted by news of the planned REIT listing in recent months. Quarterly earnings have also rebounded so far this year, following a RM254.15 million net loss in 2023.

On Wednesday (Sept 18), WCT announced a plan to dispose of three retail properties — Bukit Tinggi Shopping Centre, Paradigm Mall Petaling Jaya, and Paradigm Mall Johor Bahru — for RM2.44 billion to a newly established REIT named Paradigm REIT, to be listed on the Main Market.

The initial public offering (IPO) is expected to raise about RM1.4 billion, a large bulk of which would be used to repay borrowings of WCT and its subsidiaries.

“We are overall positive on the proposed listing of Paradigm REIT, which will put its balance sheet on a stronger footing, [in] line with its de-gearing efforts,” said CGS International.

The house estimates that the indicative equity value of Paradigm REIT is RM1.6 billion, based on a net property income yield of 6%-7%. “Based on peers in the retail space, we think dividends north of 6% will be required to make the listing attractive,” CGS International added.

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