Market left guessing Desmond Lim’s plans

KUALA LUMPUR (Nov 3): Tan Sri Desmond Lim Siew Choon’s emergence as the single-largest shareholder of WCT Holdings Bhd on Tuesday has got the market speculating about his plans for the construction group as well as Malton Bhd and Pavilion Real Estate Investment Trust (REIT), in which he has 35.3% and 28% interests, respectively.

Lim, who is the chairman of Pavilion REIT, acquired the stake comprising 245.72 million shares on Tuesday from WCT co-founders Peter Taing Kim Hwa and Wong Sewe Wing. It is estimated that Lim had forked out RM614.3 million for the stake, based on a transacted price of RM2.50 apiece, which represented a 75 sen or 42.8% premium to its closing price of RM1.75 that day.

According to a filing with Bursa Malaysia yesterday, WCT said Lim had been appointed its executive chairman with immediate effect. Meanwhile, Malton said Lim intends to relinquish his position as executive chairman, but will assume the position of non-independent non-executive chairman with effect from Jan 2 next year.

Now, many in the investing fraternity are wondering what sort of future lies ahead for WCT, Pavilion REIT and Malton, which have a combined market capitalisation of close to RM8 billion.

Most research analysts opine that the matured shopping malls of WCT will be injected into Pavilion REIT, while future construction jobs will be awarded to WCT for the Pavilion-branded developments, which are being partly undertaken by Malton.

In a report dated Nov 2, Affin Hwang Capital analyst Loong Chee Wei said there is long-term potential for WCT to be the vehicle to consolidate Lim’s private assets, such as land bank and listed company stakes.

“There are potential benefits from new construction contracts that could be awarded to WCT for Pavilion Damansara Heights, with an estimated gross development value (GDV) of RM7 billion, as well as Pavilion Bukit Jalil, with an estimated GDV of RM3.5 billion of projects which are developed by Malton,” he wrote.

Loong also highlighted that Pavilion REIT will likely to benefit from the potential injection of matured malls, as WCT has been planning to monetise its Paradigm Mall Petaling Jaya and Bandar Bukit Tinggi (BBT) Shopping Mall in Klang with an estimated asset value of RM1.2 billion through a separate REIT listing.

“Following the change of major shareholder, we believe it is more likely that the malls will be injected into Pavilion REIT. WCT is also building the Paradigm Johor Baru mall, which will open in 2017 and this could be injected into Pavilion REIT in the long run. The attractiveness of the possible deals will depend on pricing and whether they are earnings-accretive,” he commented.

AmResearch analyst Joshua Ng believes Lim’s entry into WCT could be a precursor to a massive restructuring of WCT, as the construction and property firm could be transformed into his flagship listed property company via the injection of his portfolio of privately held property projects.

“WCT’s existing investment properties such as Paradigm Mall PJ, BBT Shopping Mall and Gateway @ klia2 may be stripped and injected into Pavilion REIT or a new REIT controlled by Lim. WCT’s construction division may go for a separate listing,” he said.

Alliance DBS Research analyst Chong Tjen San, for one, remained sceptical for now, considering the emergence of new shareholder could cast uncertainty in terms of the future direction of the company and whether there will be mergers with other listed vehicles.

“While the steep premium paid by Lim provides some assurance to minorities on the conviction he has in the company, there is no immediate cash payment to minorities from potentially special dividends,” he pointed out.

Shares in WCT Holdings gained eight sen or 4.57% to settle at a one-year high of RM1.83, with a market value of RM2.28 billion.

Malton shares rose 2.5 sen or 3.82% to close at a three-month high of 68 sen, with a market capitalisation of RM302.68 million.

Pavilion REIT closed one sen or 0.56% higher at RM1.78, giving it a market capitalisation of RM5.38 billion.

This article first appeared in The Edge Financial Daily, on Nov 3, 2016. Subscribe to The Edge Financial Daily here.