PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 27 Nov 2020, 11:04 AM


WCT Holdings Berhad - Below Expectations

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WCT Holdings (WCT) reported a slight loss of RM1.3m (-103.4% YoY) in 1QFY20. While revenue dropped by 29.5% due to lower recognition from all key segments due to movement lockdowns implemented mid-March, bottom line was dragged by other expenses (donations and Covid-19 related costs) as well as distribution to perpetual sukuk holders amounting to RM18.2m. The results are below our and consensus full-year earnings projections of RM127.1m and RM90.4m respectively. Stricter operating procedures executed at workplace/sites will result in levels of productivity remaining low, and is likely to take some time to revert to pre-Covid levels. Our FY20-21 earnings estimates are adjusted lower by an average of 25.8%. We maintain our Neutral rating though with a higher TP of RM0.54 (from RM0.38) as we rollover valuations to FY21. We retain a 20% discount to valuations due to its high financial commitments as its de-gearing exercise appears more challenging amid the current operating climate, limiting its growth potential.

  • Result highlights. The Group reported a loss of RM1.3m in 1QFY20, from a profit of RM39.5m in 1QFY19 on the back of a 29.5% YoY decline in revenue. The performance was mainly due to lower recognition from all key segments given the implementation of the Movement Control Order, though it was partly offset by the sale of undeveloped landbank during the quarter. Revenue and profit of RM25.2m and RM16.4m were generated, as compared to the land sale recognition of RM54.7m and RM30.6m respectively in 1QFY19. Gross profit margin for the quarter was relatively flat at 22.8% vs. 23.1% in 1Q19, largely helped by the yield achieved from the sale of land which mitigated the impact of the lockdown as overhead costs continued to run. Costs were also incurred for other Covid-19 related expenses.
  • Outlook. While WCT’s outstanding orderbook appears healthy at around RM6bn with the recent award of Parcel 2 of Pavilion Damansara Heights worth RM1.2bn in March this year, we believe the Group may face some challenges in project execution given the new operating norms amid the Covid-19 pandemic, limiting speed and work progress. Progress of other key projects such as LRT3 will also be delayed as the structure and cost has yet to finalised. WCT’s outstanding orderbook for the various LRT3 packages stand at RM1.3bn, translating to ~20% of total orderbook. Award of new projects also remain uncertain given the current operating climate as well as the Federal government’s financial constraints. The property development segment will also see challenges caused by oversupply issues. However, the sale of land might help to mitigate the impact.

Source: PublicInvest Research - 26 Jun 2020

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