WCT Holdings (WCT) reported a core net loss of RM6.3m in 1QFY23,  representing a >100% drop QoQ due to seasonally slower construction progress billings and sluggish property sales. The Group’s 1QFY23 core net profit is below ours and consensus estimates. As such, we trim our projected core net profit for FY23-25F by 19.7% on average on the back of slower construction progress billings, coupled with lower property sales assumptions. Although WCT has not been awarded any jobs as-todate, nonetheless, current construction outstanding orderbook stood at  RM3.3bn, providing earnings visibility for the next 2 years. Overall, we  are sanguine about the Group’s prospect – it is well positioned to participate in public infrastructure projects due to its strong execution ability and expertise in infrastructure works which are expected to be awarded in 2HFY23. Additionally, the Group is also looking to dispose its non-core assets such as its land and mature investment assets as part of  its degearing exercise. Hence, we maintain our Outperform call on WCT  though with a lower SOP-based TP of RM0.50 (previously RM0.52), or implied 15x PER given WCT’s competence within the infrastructure construction space.

• Topline fell 13.3% QoQ, attributed to lower contribution from its construction and property division. Topline was mainly supported by  the property investment & management division, revenue for the  division rose 13.7% QoQ from RM45.7m in 4QFY22 due to improved  footfalls and occupancy rates across its hotels and malls.

• Pretax profit (PBT) down by 37.9% QoQ, as a result of lower share  of profits from associates & JV, as well as higher finance cost. The  share of profits from associates & JV dropped 77.7% QoQ, which we  understand, is by reason of slower construction progress billings from  the Sapangar Bay Container Port expansion project.

• Our thoughts. Although the Group has not been awarded any jobs  as-to-date, current construction outstanding orderbook stood at  RM3.3bn, providing earnings visibility for the next 2 years. Overall, we are sanguine about the Group’s prospect – it is well-positioned to participate in public infrastructure projects due to its strong execution ability and expertise in infrastructure works which are expected to be awarded in 2HFY23. Additionally, we are also anticipating a land disposal to take place by 4QFY23. We estimate the disposal could fetch as high as RM270m-340m (based on RM120-150psf) in market value. The proposed land disposal, we estimate, could bump up its  earnings by RM68m-85m (assuming 25% PBT)

Source: PublicInvest Research - 26 May 2023