- We maintain our HOLD call on WCT Holdings with our fair value raised a tad higher to RM1.52/share (previous: RM1.51/share) following its latest construction award. WCT announced that it secured a letter of award from PRPC Utilities & Facilities Sdn Bhd, a unit of PETRONAS.

- The award is for the procurement, construction and commissioning at the client’s Utilities, Interconnecting and Offsite (UIO) facilities. This is for civil and infrastructure works at the Petchem Interconnecting and 6,900 Area and Petchem Interconnecting South Area, which we believe relate to PETRONAS’ RAPID project.

- WCT’s latest contract win (RM267mil over 31 months) is its second in a week after bagging some RM755mil worth of road/infrastructure works at the Tun Razak Exchange (TRX). It continues the group’s recent order book resurgence after enduring a slower patch last year.

- The latest contract from PETRONAS is WCT’s second from the national oil giant within a year following an earlier RM342mil contract last July. We believe that this reinforces WCT’s proven pedigree in undertaking major earthworks and infrastructure jobs in Malaysia.

- Year-to-date, new contracts secured is ~RM2.1bil or roughly 2.1x the total jobs it secured in 2014. Assuming pre-tax construction margins of 6%, we correspondingly raise our FY15F-17F core net profit forecast by 1%-4%.

- While WCT’s orderbook revival is positive, we remain concerned with its rising cash flow needs from aggressive property investment expansions (e.g. new Paradigm malls in Johor and OUG) that may further strain its cash flows amid a weaker retail environment. Excluding the proposed OUG mall, in-house construction of its property investments for 2Q15 was already worth ~RM585mil (2Q15 net gearing: 81%).

- This is not helped by prospects of rising MGS yields, which in turn, makes any asset monetisation plans more challenging, we opine. What’s more, the amount due from the Meydan Racecourse arbitration award will likely not be immediately available, we understand.

- At the same time, WCT is moving into new territory following its move to acquire a plot of land in TRX for RM223mil (~RM3,097psf). While WCT has a good track record in developing township land via the successful Bandar Bukit Tinggi township in Klang, it is still relatively new within the high-end segment.

- As per our earlier update, a higher plot ratio of ~11x for the TRX land may require a higher breakeven sales volume. As the TRX is a greenfield area, it remains to be seen whether this can be achieved.

Source: AmeSecurities Research - 28 Oct 2015