AmResearch

WCT - Making fresh gains in Qatar HOLD

kiasutrader
Publish date: Tue, 10 Mar 2015, 10:05 AM

- We maintain our HOLD recommendation on WCT with an unchanged fair value of RM1.80/share. This pegs the stock at a 35% discount to its estimated SOP value.

- WCT has secured a contract from Lusail Real Estate Development Co (CP07-C-1B) via a partnership with Al-Ali Projects Co.

- The contract is valued at 1.2 billion Qatar Riyal’s (RM1.2bil).

- WCT has a 70% stake in the JV, with Al-Ali holding the balance 30%.This translates into an effective share of ~RM847mil for WCT’s portion of the contract.

- The scope of works include the construction of a commercial boulevard with Road D3, Road A4, internal roads, utilities, five small-sized LRT stations and four 2- storey underground car parks.

- WCT is expected to commence works from 3 March 2015. The entire project is scheduled to be completed by the second quarter of 2017.

- The fresh contract represents WCT’s first win for FY15F. On the local front, we expect WCT’s competitive edge as an efficient contractor to place the group in the running for several upcoming bids (e.g. KWASA Damansara civil works, KL 118, Klang Valley LRT 3).

- We nevertheless make no changes to our earnings forecast as it is within our FY15F new order book assumptions of RM1bil.

- While the latest development provides some order book support, we maintain our HOLD rating on WCT.

- Apart from more competition for jobs, one of our key concerns remains with WCT’s increasingly leveraged balance sheet (net gearing at 0.7x as at 31 December 2014), as it moves to increase exposure to property investments.

- This comes amid mounting requirements to fund the construction of its property investments, i.e. the Paradigm Johor and KL (OUG) projects.

- Any further delays to a reported plan to inject its malls into a REIT or a push back in the launches of new property investments would put more strain on the group’s cash flows, in our view.

Source: AmeSecurities

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