Investment Highlights

• We maintain BUY on WCT with a lower fair value of RM0.59/share vs. RM0.60/share previously. Our fair value is based on 9x FY23F PE, which is in line with our benchmark forward PE of 9x for small-cap construction stocks. There are no adjustments for ESG based on our 3-star rating.

• Following a briefing last Friday, we have lowered our FY22F earnings for WCT by 1% and FY23F–FY24F by 2% to account for the impact of higher construction costs. Here are the highlights from WCT’s briefing:

• The construction segment’s order book currently stands at RM4.4bil (3.6x FY21 construction revenue) while tenders submitted amounted to RM9bil (civil & infra 56%; building 44%). Management maintains guidance of RM1bil to RM2bil for new jobs this year, potentially from hospital and infrastructural projects. Despite the lack of replenishment so far, we make no changes to our FY22F–24F assumption of RM1.2bil as we expect job flows to recover in 2HFY22.

• On the MRT, tenders for civil contractor packages opened last Friday. We believe that WCT stands to benefit from the rollout of the MRT3 project. Recall that it had secured 2 packages worth RM1.1bil for the MRT2 in 2016 and 2017 as well as 3 packages worth RM1.5bil (prior to cost review) for the LRT3 in 2017.

• On rising costs, management guided that the costing for its current projects is based on 31 Dec 2021 prices. As building material costs have risen since December 2021, we lower our EBIT assumptions to 5% from 7% to reflect the higher prices.

• For the property development segment, WCT has achieved sales of RM94mil which make up 21% of our sales target of RM450mil. Although management is guiding for FY22F sales target of RM750mil, we choose to be conservative as we believe that sentiment is weak due to potential hikes in Malaysia’s interest rate.

• Overall, challenges faced by WCT are: (i) rising building material costs led by an escalated or prolonged UkraineRussia war; and ii) delays or shelving of mega projects.

• We believe the stock is currently undervalued as it is trading at 8x FY23F PE which is lower than both our small-cap benchmark PE of 9x and average 4-year PE of 10x (Exhibit 3).

Source: AmInvest Research - 30 May 2022