Investment Highlights

• We maintain HOLD on WCT Holdings (WCT) with a lower value (FV) of RM0.54/share (from RM0.59/share previou based on a rolled-forward FY25F P/E of 12x – at parity to it year mean. There is no FV adjustment for ESG based on neutral 3-star rating.

• WCT’s FY23 results were way below expectations with core loss (CNL) of RM255mil vs. our forecast net profit of RM33mil consensus’ RM58mil. As legacy contracts with low mar come toward the end of progress recognition, we expect fu contracts secured to offer better earnings prospects. Even we cut our earnings by 30% for FY24F and a softer 10% for FY to account for lower construction margin assumptions existing jobs.

• Sequentially, 4QFY23 CNL deteriorated to RM248mil from RM12mil in 3QFY23 due to a 19% QoQ decline in progress billing together with additional cost provisions on the group’s projects.

• In FY23, group revenue dropped 18% YoY to RM1.7bil mainly to construction contracting 22% YoY due to slower prog recognition and lack of new job wins, which caused WC outstanding order book to slide 10% QoQ to RM2.7bil (1.2x FY revenue) as at Dec 2023 from RM3.0bil at end-3QF Exacerbated by material and labour cost escalations, group widened to RM255mil in FY23 vs. RM17mil in FY22.

• Meanwhile, FY23 property development revenue slid 20% Yo FY22 benefited from a RM214mil sale of vacant land. Hig revenue in FY23 benefited from higher take-up rates and launches like Pavilion Mont Kiara (GDV RM808mil), w supported the segment’s FY23 EBIT growth of 12% YoY.

• The property investment division’s FY23 EBIT slid 14% YoY to higher FY22 fair value gain recognised on investm properties. Nevertheless, this segment’s revenue expanded YoY from higher occupancy and rental rates at its retail malls hotels.

• Although the group is positioned to ride on positive sentiments on domestic construction job flows with tenders worth over RM12bil (4.4x outstanding order book) submitted or pending submission, WCT’s risks include (i) weaker-than-expected recovery of job flows; (ii) eroding profit margins from rising building material costs; and (iii) delays/cost revisions of mega projects. WCT is currently trading at a moderate FY25F PE of 14x, near the average of 15x-16x for large-cap construction stocks.

Source: AmInvest Research - 1 Mar 2024