WCT reported a weaker set of 3QFY21 results, posting a core net loss of RM41.9m against a core net profit of RM2.7m in 3QFY20. Cumulatively, it recorded a core net loss of RM9.5m for 9MFY21, drop from a core net profit of RM 10.1m in 9MFY20. The weaker performance was attributed to the adjustment made for some construction projects’ profit margin which has cost them ~RM22m. Other key segments were also still affected by the movement restrictions and strict COVID-19 SOPs such as hotels and malls. The results were below our and consensus expectation of a full year net profit of RM62.4m and RM49.1m respectively. While business sentiment appears to be improving given the higher vaccination rates and relaxation on COVID-19 SOPs, we foresee recovery taking a little longer for WCT as international travel is still not permitted, weighing on its property investment segment. We cut our FY21F to a core net loss of RM6.5m while FY22/23F earnings by 20.8% on average to reflect lower margin assumption for its construction segment. Maintain Neutral call with a revised SOP TP of RM0.52 (previously RM0.58).

• Results highlights. WCT’s 3QFY20 bottom line turned negative with a core net loss of RM41.9m against a core net profit of RM16.1m in the previous quarter. This is despite a revenue growth of 3.7% QoQ. The weaker performance for the quarter was attributed to the adjustment made for some construction projects’ profit margin which has cost the Group about RM22m. Other key segments were also weak as businesses were still affected by tight SOPs such as its property investment for the hotel operations and lower shopper footfall in its retail mall. Gross profit margin contracted 9.7 ppt QoQ.

• Recovery may take a while. While WCT’s outstanding orderbook appears healthy at around RM5bn, we believe the Group may face some challenges in projects execution given the new norms as it has adopted more stringent preventive measures to mitigate the viral transmissions. We gather that the workforce capacity at work site has returned to 100% in the 4Q. While tenderbook is also strong at RM9bn, the award of new project remains uncertain given the current operating climate as well as government’s financial constraint.

• Net gearing to gradually improve. Net gearing of the group stood at 0.64x after the initial cash payment of RM319m from Meydan. We expect gearing to fall progressively in the next 2-3 years as debt is repaid using proceeds from land sales, completed inventories sold and remaining cash from Meydan (c.RM510m).

Source: PublicInvest Research - 26 Nov 2021