WCT Holdings (WCT) reported a headline net profit of RM51m in 4QFY21, though this is mainly due to net gain from settlement of arbitration award amounting to RM282.1m. Stripping this off and other exceptional items totalling RM260.8m, the Group reported a huge core net loss of RM209.8m against a core net loss of RM40.6m in 4Q last year. 4QFY21 revenue was also lower 23.1% YoY. Cumulatively, WCT reported a core net loss of RM219.4m for FY21 against an RM53.3m core net loss reported in FY20, missing our and consensus expectations of RM6.5m and RM19.1m in net losses respectively. Overall performance has been dragged by lower profit margins for all key segments, with the Covid-19 pandemic having a significant impact. Higher material costs were also a drag. Our FY22/23 earnings estimates are maintained nonetheless as we foresee improvements particularly from its construction and property development division given the relaxation in COVID-19 SOPs, hence efficiencies improving. Earnings are also expected to be propped up by land sales. Maintain Neutral call with a revised SOP-based TP of RM0.52.

• Results highlights. WCT’s 4QFY21 bottom line remained in the red with core net loss of RM209.8m recorded, with revenue also declining by 6.8% QoQ. The COVID-19 pandemic remains a drag on performance, keeping efficiency levels low, while continued supply chain disruptions also weighed. The Group accounted for ~RM158.1m from the impact of the pandemic and inflation on construction projects during the quarter. Gross margin was at -31.6% from +9.3% in the previous quarter. Other key segment such as property investment are also weak as operations are still be affected by tight SOPs.

• Expecting improvement in FY22. While we think the current operating environment is still challenging given the recent rise in COVID-19 cases, we foresee earnings improvement in FY22 particularly from its construction and property development division given the relaxation on COVID-19 SOPs, hence efficiencies improving. Earnings are also expected to be propped up by the property land sales. The easing of travel restrictions coupled with renewed consumer confidence and pentup consumer demand are also anticipated to revitalise its property investment business, involving its five retail malls as well as hotels. Meanwhile, asset monetisation through land sales and unsold completed inventories as well as cash payment from the arbitration win would help to improve its net gearing in in the near term.

Source: PublicInvest Research - 25 Feb 2022