WCT’s bargaining power improving after dispute case
KUCHING: WCT Holdings Bhd’s (WCT) bargaining position has been viewed as strengthening following its win in its dispute with tenant AEON Co (M) Bhd (AEON) with regards to the extension of the tenancy of AEON Bukit Tinggi Shopping Centre (AEON Bukit Tinggi).
“We are slightly positive on the latest development. We believe that the court’s decision has strengthened WCT’s bargaining position vs. AEON, assuming that there is still a chance that the parties would attempt to reach an amicable out-of-court settlement,” the research arm of AmInvestment Bank Bhd (AmInvestment) said.
On Wednesday, WCT announced that on April 27, the Kuala Lumpur High Court ruled in favour of WCT’s indirect, wholly owned subsidiary, Gemilang Waras Sdn Bhd, dismissing AEON’s suit with regards to the extension of the tenancy of AEON Bukit Tinggi.
The court viewed that that there was no renewal of the lease upon its expiry on November 23, 2017, AEON will have to vacate the Bandar Bukit Tinggi Shopping Centre, AEON will have to pay WCT
damages calculated from November 23, 2017 to the date of vacant possession, as well as RM10,000 legal cost.
AEON has informed the court that it intends to file an appeal against the decision and an application for stay of execution, pending the appeal. The court has granted an interim/temporary stay of execution pending AEON’s formal application to stay which is expected to be filed within 14 days of the court’s decision.
AmInvestment noted that the key stumbling block for the parties to mutually agree to a five-year extension upon the expiry of the initial 10-year lease which expired on November 27, 2017, is AEON’s rejection of WCT’s plans to take back part of the mall’s open car park space (main-road fronting, with an LRT3 station under planning next to it) for property development.
“In any case, given the experience accumulated by WCT in running shopping malls (Paradigm Mall in PJ, Gateway@ KLIA2 and Paradigm Mall in JB) in recent years, we believe WCT will be able to find a replacement for AEON as the anchor tenant for the mall, if need be,” it said.
For the financial year 2017 (FY17), AmInvestment estimated that the mall contributed RM32 million or 11 per cent of WCT total earnings before interest and tax (EBIT).
All in, the research team maintained its ‘hold’ call on the stock.
It said, “We maintain our view that WCT’s construction division has turned the corner with the award of key infrastructure projects such as the MRT2, LRT3 and Pan Borneo Sarawak Highway recently.
“However, its property division has not been spared the downturn in the property market and is weighed down by some RM550 million of unsold stock (1.8-folds its property sales of RM305 million in FY17).
“WCT could be missing the window to list its matured investment properties under a REIT at good valuations against a backdrop of rising interest rate and surging supply of retail space in the market.
“All these, coupled with WCT’s proposed placement of new shares of up to 10 per cent of its existing paid-up capital, are likely to cap the upside in WCT’s share price over the near term.”