WCT Holdings (WCT) 2QFY23 core net profit climbed >100% QoQ at RM11.7m however, cumulative core net profit as of 1HFY23 is 76% lower YoY. The Group’s lacklustre performance is dragged by the slow construction progress from the low margin projects and slow property sales. WCT’s 1HFY23 core net profit is below our and consensus estimates at 8.4% and 7.4% respectively. We revise down our FY23-25F orderbook replenishment assumption by 50% to RM750m per annum as the Group has yet to secure any new jobs year-to-date. As such, we slash our FY23-25 forecast by an average of 14.2% per annum. We expect key earnings driver in 2HFY23 would be the property investment & management division due to higher rental income and improved occupancy rates. We are also positive about its potential as a beneficiary of public infrastructure projects rollout. However, we believe it is fairly valued for now. All told, we downgrade WCT to Neutral with a lower SOP based TP of RM0.49 (previously RM0.50), pegged at 15x PER sector average, to reflect our adjusted earnings forecast and as we rollover our valuation base year to CY24.

• Revenue dropped 28.9% YoY in 1HFY23, as the construction division registered lower contribution by 22.8% YoY, mainly due to slower progress billings as certain projects i.e.: Pan Borneo highway and TRX are at tail-end. On the flip side, 1HFY23 revenue was supported by property and property investment & management divisions – revenue improved 34% and 13.2% YoY respectively due to improved property sales (coming from the clearing of inventories), footfalls and occupancy rates across its hotels and malls.

• 1HFY23 pretax profit (PBT) fell 33.7% YoY, as a result of lower gross profit, as well as higher finance cost. We understand that the Group is still working on construction projects which margins are dampened by higher input costs. In addition, property sales are also mostly from clearing of old inventory (with thinner margins as well).

• Outlook. As of 1HFY23, WCT’s construction order book stood at RM3.1bn, providing earnings visibility up to 2 years. On property front, the Group achieved only 28% of its RM750m internal property sales target for FY23. We expect key earnings driver for WCT would be its property investment & management division due to higher rental income and improved occupancy rates. Although the Group has yet to bag any jobs year-to-date, we are still positive about its potential as a beneficiary of public infrastructure projects rollout.

Source: PublicInvest Research - 30 Aug 2023