- Maintain BUY on WCT Holdings with an unchanged fair value of RM2.80/share – a 15% discount to its sum-of-parts value.

- For its 1Q14 results, WCT reported a core net profit of RM40mil on revenue of RM467mil. 1Q earnings came in at 22% of our estimates (consensus: 21%), but should pick up in the sequential quarters as the pace of its property and construction projects improves.

- Construction margins improved from <1% in 4Q13 to close to 10% in 1Q14. To recap, WCT had in 4Q13, prudently revised margins for some of its ongoing jobs amid a more challenging cost environment.

- We expect WCT to step-up its order book replenishment initiatives in the coming months. Last year, the group secured RM670mil worth of new contracts, falling short of the initial expectations of over RM1bil.

- The announcement of some RM5bil worth of contracts under the West Coast Expressway (WCE) could be a catalyst for WCT.

- We expect WCT to either be in the running for some RM2.2bil worth of jobs under open tender, or feature at the sub-contractor level for another RM2.8bil of WCE jobs which were awarded to IJM Corp.

- Notably, WCT undertook sub-contracting works (Package 1B & 2A) for IJM for the Kajang-Seremban Highway (LEKAS).

- Some other prospective job bids for WCT are:- (i) Tun Razak Exchange earthworks Zone 2 & 3 (RM200mil-RM300mil); (ii) RAPID civil works (Phase 2); and (iii) infrastructure projects in Qatar.

- WCT’s forward valuations appear undemanding at 10x-14x PEs over FY14F-16F FD EPS, and underpinned by a solid EPS CAGR of 13%. Balance sheet remains healthy with a projected FY14F net gearing of 36%.

- The opening of Gateway@klia2 on 2 May removes a key overhang for WCT’s growing property investment portfolio, where over 200 retailers have signed up.

- Most of them are tipped to open their doors by month-end upon completion of fit-out works. Tenancy rates are ~80% at the moment, we believe.

- Another two malls under Paradigm are firmly in the pipeline. To be developed under the Paradigm brand, the new malls would be built in Taman Yarl (near OUG) and JB. The latter could be introduced by mid-2016. 

Source: AmeSecurities