WCT Holdings’ 3QFY22 core net profit improved >100% YoY due to better performance in the property development and property investment & management division. This was mainly attributable to higher sales of unsold inventories and business recovery across its hotels & malls as the country transitioned to endemic phase. Cumulatively, 9MFY22 core net profit was in-line with our but below street estimates, accounting for 77% and 58.6% of full-year forecast respectively. We have yet to see a meaningful pick up in WCT’s core business. Adding to that, the Group has not secured any construction projects year-to-date. Thus, we retain our earnings estimates and our Neutral call with an unchanged SOTP-based TP of RM0.50.

• 3QFY22 revenue up by 4.1% YoY, supported by the property development and property investment & management division. The property development division achieved 97.2% surge in revenue YoY, which we believe, was due to the successful clearance of unsold inventories which stood at RM365m as at 3QFY22, down 27.9% from RM506m as at 3QFY21. Meanwhile, the property investment & management division revenue increased by 16.2% YoY owing to higher footfalls and occupancy rates across its hotels and malls.

• 3QFY22 PBT rose >100% YoY. We see enhancement in the Group’s operational costs, perhaps due to the stabilisation of building material costs and labour market condition within the industry. CIDB reported c.10% improvement on the headcount of general construction labour from 1H2022. In terms of building material costs, prices have stabilised and retreated c.3.9ppts from 1H2022. Operating expenses improved 9.8% YoY from RM470.2 in 3QFY21 coupled with higher share of profit from associates, up 150.2% YoY.

• Our view. Despite seeing a mild recovery, we continue to remain neutral on WCT as the performance of the Group’s core business has yet to pick up. Adding to that, the Group has not secured any construction projects year-to-date. As of 3QFY22, WCT’s outstanding orderbook was at RM3.8bn, which represents earnings visibility up to c.3 years. Meanwhile, current unbilled sales stood at RM303m vs RM335m last quarter. Net gearing was at 0.65x vs. 0.68x as at end of FY21. Including the perpetual sukuk, it would be around 1.16x. Moving forward, we think that the Group would compete as a sub contractor in the construction space due to its higher-than-industry average gearing.

Source: PublicInvest Research - 30 Nov 2022