PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 22 Jan 2021, 10:40 AM


WCT Holdings Berhad - Still Struggling

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WCT Holdings (WCT) reported lower core net profit of RM2.7m (-92.3% YoY) in 3QFY20 despite higher revenue of RM423.4m (+15% YoY) reported. This is attributed to lower profit margins for certain key segments that are still affected by movement restrictions and Covid-19, such as hotels and malls as respective businesses remain weak while operational costs continue to run. This is further worsened by the distribution to holders of perpetual sukuk amounting to RM24.3m during the quarter. WCT’s core net profit for 9MFY20 dropped 89.7% YTD to RM10.1m as a result, with topline sliding 12.9% YTD. The results are below our and consensus full-year earnings projections, meeting only 15.4% and 32.7% of estimates. Given the recent upsurge in local transmissions and re-implementation of movement restrictions, we are of the view that recovery may take longer than expected hence earnings are expected to remain weak. As such, our FY20/FY21/FY22 earnings estimates are adjusted lower by 68.1%/39.1%/29.6%. We maintain our Neutral rating with a new TP of RM0.44 (from RM0.47) based on FY21 SOTP valuations.

  • Results highlights. WCT’s 3QFY20 performance remains weak with activity levels still below pre-Covid levels. While construction works have resumed during the conditional movement restrictions, the Group is adopting more stringent preventive measures to mitigate the viral transmissions. Other segments are also weak due to drops in consumer spending and shopper footfall in its retail malls as well as temporary suspension of the Group’s hotel operations. This also includes lower sales of its property units. The Group reported a small core net profit of RM2.7m in 3QFY20 as compared to RM8.7m in 2QFY20.
  • Longer recovery anticipated. The pandemic appears to have weakened the Group more notably than others. With stricter operating conditions executed at work sites, we believe the level of productivity will remain low hence earnings recovery taking a bit more time to return to pre-Covid levels. While WCT’s outstanding orderbook appears healthy at around RM5bn, we foresee the Group may face some challenges in project execution given the new norms. The award of new contracts also remains uncertain given the current operating climate. Its high financial commitments and de-gearing exercise made more challenging by the weak operating conditions will limit its growth potential.

Source: PublicInvest Research - 26 Nov 2020

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