- We maintain our HOLD recommendation on WCT Holdings with our fair value tweaked slightly upwards to RM1.55/share (from RM1.54/share) following its latest contract win. This pegs the stock at an unchanged 40% discount to its revised NAV of RM2.56/share.

- WCT announced that it has secured a subcontract for the West Coast Expressway (WCE) from IJM Corp. The group’s package involves the construction of Section 3, i.e. Shah Alam Expressway interchange to NKVE/FHR2 interchange.

- The scope of works form part of Section 3 of the main highway works that is being undertaken by IJM.

- The latter was earlier awarded the main construction works for the first phase of WCE worth an estimated RM2.8bil (Section 3, 4, 5, 8 & 9).

- This is not the first time WCT has secured subcontracting works from IJM. Both had worked together during the construction of Lekas highway.

- This, in turn, puts WCT in good stead to compete for a slice of the balance RM2.2bil worth of jobs under WCE.

- More importantly, WCT’s latest win underscores its status as a cost-competitive contractor – and this comes on the heels of a string of high profile contracts it successfully secured in recent months (e.g. TRX, RAPID and KWASA Damansara).

- WCT seems to be ending the year with a flourish. This new job pushes the group’s new contract wins to ~RM2.7bil ytd vs only RM993mil for the whole of FY14.

- We nevertheless maintain our HOLD rating for now. The spectre of rising cash flow commitments from an aggressive property investment push over the last few years have put a strain on its cash flows, in our view.

- At the same time, property earnings have remained largely subdued – particularly in Johor.

- Excluding the proposed OUG mall, in-house construction of its property investments for 2Q15 was already worth ~RM585mil. To be sure, WCT’s net gearing stood at 81% as at June 2015.

- Furthermore, the spectre of rising MGS yields makes WCT's prospects of monetizing the value of its property investments a tad more challenging moving into 2016.

- We would only turn more constructive on the stock when there are more tangible signs of an improvement in its balance sheet.

Source: AmeSecurities Research - 17 Nov 2015