Investment Highlights

• We reduce our FY18F net profit forecast by 13% and cut our FV by 15% to RM1.62 (from RM1.91) but maintain our HOLD call.

• WCT's FY17 core net profit of RM114.4mil missed our forecast and consensus estimates by a whopping 26% and 22% respectively. The key variance against our forecast came from a share of lumpy losses from property development and investment JVs (of which details are still pending).

• The core net profit excluded RM225.3mil investment property fair value gains, RM164.6mil impairment on receivables “due from a contract customer in Qatar” and RM20.5mil unrealised forex losses. Strictly speaking, the impairment on receivables could be regarded as operational as well.

• FY17 core net profit still grew 14% from a washout a year ago, as higher construction profits (on improved margins) more than offset lower property development earnings and JV losses.

• WCT secured RM2bil worth of new jobs in FY17. We expect WCT to guide for the same amount of job wins for FY18 during an analyst briefing later today. Our forecasts assume an order book replenishment target of RM2bil annually in FY18-20F. During a briefing in Nov 17, WCT said that it is, among others, eyeing work packages from West Coast Expressway, East Coast Rail Link, Pan Borneo Sabah and potentially a revived Kaiduan Dam project in Sabah (of which WCT was reported to have been awarded a letter of intent by the Sabah state government in 2009).

• We maintain our view that WCT will ultimately be turned into the flagship PLC of Tan Sri Desmond Lim, via the injection of Malton (a sister company of WCT, with its prized asset being Pavilion Bukit Jalil) and Lim’s private business ventures including Pavilion Kuala Lumpur and Pavilion Damansara Heights. This could potentially double WCT’s market capitalisation to above RM4bil. However, we believe it is premature to tell if the exercise will be value-enhancing to WCT’s existing shareholders, as that depends largely on the structure and pricing of the assets and new shares to be issued pursuant to the corporate exercise.

Source: AmInvest Research - 27 Feb 2018