WCT: Overshooting...

Yesterday, WCT announced that it has won its long-running dispute with the developer Meydan Group over the construction of the Nad Al Sheba racecourse in Dubai. WCT was awarded a final settlement in the case worth Dh1.1 billion [equivalent to RM1.2 billion (plus arbitration costs of Dh8.2 million and legal costs of Dh26.7 million) by the Dubai International Arbitration Centre. For more, go here. 

WCT is also in the midst of completing its 1-for-10 Rights Issue at RM1.00 each. Thus, the successful claim against the Meydan Group would give a big boost to its share price as well as the price of WCT-OR. The latter has commenced trading on July 8 and will cease trading on July 16.

Normally, when a Rights is traded in the market, we will see arbitraging between the Rights & the share whereby some shareholders may choose to sell their shares and use the sale proceed to buy the Rights & subscribe the Rights Issue shares with the Rights acquired. This would yield a small surplus. As at 12.10pm, the share price is trading at RM1.49 while the OR is trading at RM0.445. This will yield a small gain of 4.5 sen or equivalent to 3.0% for 3-4 weeks tie-down period.

Given the big jump in the share price for WCT - from a low of RM1.20 on July 8 to a high of RM1.54 today - many would expect some correction ahead. If this scenario panned out, then a strategy of selling the shares early and buying the OR later could yield a higher return. Bear in mind that WCT is now implementing the first leg of its capital exercise which is the Rights Issue of shares on the basis of 1-for-10 while the second leg is a Bonus Issue of warrant E on the basis of 1-for-5 is still pending. Thus, there is an incentive to remain invested in this stock.

Brief Outline of the Rights Issue & Bonus Issue For more, go here.

Technically speaking, WCT is tracing out an expanding triangle formation with support at RM1.35. See the daily Chart 1 below.


Chart 1: WCT's daily chart as atJuly 10, 2015_12.00pm (Source: ShareInvestor.com)
 
The monthly Chart 2 shows that the stock is still in a gradual uptrend line with support at RM1.40.

 
Chart 2: WCT's monthly chart as atJuly 10, 2015_12.00pm (Source: ShareInvestor.com)

Based on positive newsflow and long-term technical outlook, WCT is a good construction stock to consider for long-term investment.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, WCT.