- We maintain BUY on WCT with a lower fair value of RM2.68/share (vs. RM2.80/share previously) – pegged at a 15% discount to its revised sum-of-parts value, as we roll forward our base year to FY15F. The lower fair value takes into account a 15% cut to its FY14F earnings (FY15F: -13%, FY16F: -2%) mainly on:- (i) the incorporation of unrealised forex losses from its overseas operations (RM7mil in 1H14 vs. a RM17mil gain a year ago); and (ii) more conservative construction margin assumptions.

-  During its post-results briefing, WCT said it is maintaining its push for construction jobs. The group has submitted a total of RM4.6bil active tenders. Some RM3.1bil of this comprises local tenders, and the balance RM1.5bil consists of Middle East jobs.

-  WCT is awaiting sub-contracting packages for the West Coast Expressway (WCE). Other key bids include the KWASA Damansara civil works as well as additional works for the RAPID Pengerang and Tun Razak Exchange (TRX) projects. Overseas, WCT’s remained focus on infrastructure prospects in Qatar.

-  Year-to-date, WCT has only delivered one new project – the RAPID Pengerang road project. While the contract from PETRONAS further embodies WCT’s competitiveness, the group is just short of four months to meet an initial new order book target of RM1bil for 2014F.

-  WCT secured pre-sales of RM245mil for 1H14 (2Q14: ~RM27mil). While we expect some pick-up in pre-sales for 2H14, particularly from the expected conversion of bookings from the Paradigm service apartments, it may still well come short of its initial new sales target of RM1.2bil for FY14F (ours: RM772mil).

-  This is more so as ~RM715mil or 30% of its targeted launches of RM2.4bil for 2014F are in Johor, where pockets of weaknesses have emerged.

-  Despite some possible changes to the accounting standards, management believes that Gateway@KLIA2 is still on track to churn out small profits of RM5mil- RM10mil. The mall opened in May with an 80% take-up rate.

-  We retain our BUY call on WCT for now. The re-profiling of its earnings base, with greater weightage on recurring income (2016F property investment target: 20% of group operating profit vs. 10% in 2Q14) is already underway. The key challenge however, is to re-assert its order book prowess, which has disappointed in recent months.

-  As at 15 August 2014, WCT’s foreign shareholding stood at almost 10% - unchanged from mid-May 2014.

Source: AmeSecurities