- We maintain our BUY rating on WCT with an unchanged fair value of RM2.80/share – pegged at a 15% discount to its Sum-Of-Parts (SOP) value. WCT reported a 2QFY14 net profit of RM34mil (1HFY14: RM74mil) on the back of RM401mil in sales.

- 1H earnings fell 25% YoY mainly on a dip in construction margins (c.4.1%-pts YoY to 8.6%) and forex losses (c.RM7mil vs a RM17mil gain a year earlier). While this only accounted for 40% of our full-year forecast (consensus: 38%), we expect a better 2H on account of a pick-up in construction billings and crystallisation of bookings for the Paradigm serviced apartments.

- WCT declared an interim single-tier DPS of 1.25 sen and also share dividends on a 1:100 basis. The group held c.42 mil treasury shares (c.3.8% of share capital) as at June 2014.

- WCT scored its first construction win for FY14 with a RM342mil road contract at PETRONAS’ RAPID project in Pengerang, Johor last month. This new contract could provide fresh impetus for WCT to ramp up its order book replenishment, which has been somewhat muted of late. We retain our FY14F RM1bil new order book top-up target for now.

- We believe Sime Engineering’s recent settlement agreement with Sinohydro, WCT and MTD for the Bakun Hydroelectric Dam project could be a precursor to some compensation due from Sarawak Hydro.

- WCT has an effective 7.7% stake in the Malaysia-China Hydro JV that received the mandate to construct the Bakun Dam. The JV had in 2012 reportedly submitted a RM670mil claim in relation to the project. This latest development is positive, as it removes any overhanging claims among the JV partners on Bakun, although the actual compensation could be far less.

- On the flipside, we see some downside risk to the group’s RM1.2bil new property sales target for FY14F – particularly with some signs of a softening in certain segments within the Johor property market.

- WCT Land raked in c.RM218mil in new sales in 1QFY14. Our conservative FY14F new sales target of RM772mil is, however, retained. New launches for FY14F include Laman Greenville in Southern Klang (officially launched in May).

- We retain our BUY call on WCT. The reprofiling of its earnings base, with a greater weightage on recurring income (2015F property investment target: 25% of group net profit) is already underway. The key challenge,however, is to re-assert its order book prowess, which has disappointed in recent months.

Source: AmeSecurities