Investment Highlights

• We maintain HOLD on WCT Holdings (WCT) with a lower fair value (FV) of RM0.44/share (vs RM0.49/share previously) based on FY24F PE of 12x, which is in line with our benchmark for large-cap construction stocks. There is no FV adjustment for ESG based on our neutral 3-star ESG rating.

• WCT’s results were below our expectations as the group recorded a 9MFY23 core net loss (CNL) of RM6.9mil, in contrast to our earlier FY23F earnings of RM55.8mil and consensus’ RM55mil.

• WCT’s results were below our estimates due to weaker-than-expected construction profit margins resulting from an increase in costs and slow pace of completion. As such, we lower FY23F-25F earnings by 16%-35%.

• Core net losses narrowed by 73% from RM25mil in 9MFY22 to RM7mil in 9MFY23 due to a 7% reduction in depreciation of construction assets and higher share of net profit in joint ventures and associates.

• On a sequential basis, 3QFY23 swung into a net loss of RM12mil from a net profit of RM12mil in the preceding quarter. In spite of a 17% QoQ increase in revenue, WCT was in the red in 3QFY23 due to cost overruns.

• YTD outstanding order book slid slightly by 3% QoQ to RM3bil, which remains in line with our assumption for FY23F. This translates to a still-decent 1.3x FY23F construction revenue. Potential job wins include Subang Airport Regeneration Plan (SARP), which may be worth RM1.3bil.

• Other targeted projects are CMC301 of MRT3, flood mitigation projects, ECRL, Pan Borneo Sabah, Coastal Highway Sarawak and elevated structures in Kuching Urban Transportation System. WCT is also looking to expand overseas, notably Nusantara in Indonesia and Middle East.

• For the property investment segment, we are positive on the recovery of footfall and occupancies in the group’s shopping malls and hotels.

• WCT’s challenges include (i) weaker-than-expected recovery of job flows; (ii) eroding margins from higher-than-expected building material costs and labour shortages; and (iii) shelving of mega projects.

• WCT is currently trading at a fair FY23F PE of 12x, at parity to the large-cap construction stocks.

Source: AmInvest Research - 24 Nov 2023