WCT Holdings (WCT) recorded a core net loss of RM12.2m in 3QFY23 from a core net profit on RM9.5m in the previous quarter. The Group exhibited weak performance due to losses from construction due the high of building material prices, coupled with slower property sales QoQ. WCT’s 3QFY23 financial performance is below our and street’s estimates. Thus, we reduce our FY23-25F orderbook replenishment assumption by 50%/35%/35% since the Group has not even secured any new jobs as-todate. All said, we lower our earnings projection by 50-60% per annum on average to reflect the billing adjustments to our forecast. Given the Group’s slow jobs replenishment rate, we now believe its earnings growth, if any, will remain pedestrian and hence, we change our valuation methodology from SOP to PBV multiple. We maintain our Neutral call on WCT however, with a lower TP of RM0.45 (previously RM0.49), pegged at 0.16x PBV (-1SD).

• Pre-tax profit (PBT) plunged 73.7% QoQ. Though the Group reported a higher topline (+17% QoQ), its operating profit tumbled 38.9% QoQ mainly due to negative construction margins. Besides, finance cost has climbed by 11.1% QoQ which has further exacerbated the lower pre-tax margin. We understand that the Group’s outstanding orderbook is largely based on prices before the spike of building material prices. Apart from that, property sales are also mostly from clearing of old inventory which has lower margins.

• Outlook. YTD outstanding construction order book marks at RM3.0bn, providing earnings visibility of less than 1.5 years. On the other hand, property sales accomplished 72% at RM538m out of its FY23 internal target of RM750m. Elsewhere, Group net gearing has added 2 ppts to 0.7x or 5 ppts to 1.16x including perpetual sukuk. Its cash pile of RM240m as of the quarter is sufficient to sustain working capital for the next 12 months. We surmise the Group’s profitability this year will be highly dependent on its property investment & management division, underpinned by steady recovery in retail performance.

Source: PublicInvest Research - 24 Nov 2023