- Maintain BUY on WCT with an unchanged fair value of RM2.85/share. This pegs the stock at a 15% discount to its sum-of-parts (SOP) value.

- WCT had received notification from the Oman government on April 6 2013, informing the company and Oman Roads Engineering Co Ltd that it had decided not to proceed with  the Batinah Expressway (Package 2) project.

- Recall, WCT had together with its JV partner Oman Roads won the RM1bil contract back in August 2012. WCT’s stake in the JV was 80%, translating into an effective contract value of RM800mil.

- The contract was one of 11 packages under the proposed 275-km long Al-Batinah Expressway. The scope of works was to have included the construction of a 44.75km dual fourlane expressway. It was originally scheduled to be completed in three years.

- In its announcement to Bursa Malaysia, WCT did not state why the project was discontinued. Nor are we privy to information such as the exact cost that the JV has sunk in thus far or if there are any grounds for compensation. But, we estimate that work progress is not more than 5%.

- This is not the first time that WCT has had its job cut short in the Middle East. Back in January 2009, the WCT-Arabtech JV had its RM4.6bil contract for the Nad Al-Sheba Racecourse contract cancelled when physical works were ~55% completed (main 1km-long grandstand: 95%).

- Based on an estimated loss of work worth ~RM730mil from this job, our initial calculations points to a 6%-17% dip in FY13F-FY15F earnings (order book: ~ -18%). This translates into a 10% reduction in our fair value to RM2.56/share. We are, however, maintaining our estimates for now pending an update from management.

- WCT has made a good head-start to FY13F with a RM315mil building job in Putrajaya secured last month. In fact, this could free up more capacity for WCT to step up its local bids post-elections, to compensate for the loss of the Oman contract. We have assumed RM1.7bil worth of new order book replenishment for FY13F.

- Also, we see more room for NAV growth coming from its expanding shopping mall portfolio – with the imminent debut of Gateway@KLIA2 by June 2013.

- Another mitigating factor is WCT’s rising property portfolio within Iskandar Malaysia (~RM3.7bil or 25% of group’s RM15bil-GDV pipeline), where both pre-sales and earnings could well surprise on the upside. Hence, we are leaving our earnings forecast and SOP target unchanged for now pending more updates from management.

Source: AmeSecurities