Investment Highlights

• We maintain our FY18F forecast, but cut those of FY19-20F by 24% and 28% respectively. We reduce our FV by 33% to RM0.92 (from RM1.38), but maintain our HOLD call. Our revised FV is based on 10x FY19F FD EPS (from SOP previously), in line with our benchmark forward PE of 10- 12x for mid-cap construction stocks.

• Amidst the uncertain outlook for WCT’s key divisions, i.e. construction and property, we believe that the market will derive greater comfort by valuing WCT via an earningsbased method, as the value of its assets, particularly, landbank and investment properties, may not be immediately realisable.

• WCT's 1QFY18 core net profit of RM38.9mil came in within expectations at 29% of our full-year forecast and 24% of full-year consensus estimates.

• 1QFY18 core net profit only grew 3% YoY as stronger construction profits and rental incomes were offset by weaker property development profits and higher interest expense.

• Despite WCT’s 1QFY18 results meeting our expectations, we cut our FY19-20F forecasts to reflect a lower assumption for construction job wins of RM1.2bil annually in FY18-20F (from RM2bil), coupled with lower property sales.

• WCT’s construction division is not spared the weakened prospects of the construction sector, as the government puts under review various mega infrastructure projects on grounds of fiscal prudence. These projects could potentially be deferred, scaled down or even cancelled. Also, the introduction of a more transparent public procurement system to plug leakages will translate to lower margins for players. Not helping either, are the prolonged downturn in the local property market and the glut in retail space that weigh down on WCT’s property division.

Source: AmInvest Research - 24 May 2018