• 3Q23 results were below expectations as its construction division slipped into the red.

• No construction wins yet in FY23F, but property sales for 9M23 are tracking full-year guidance of RM800m and unsold property inventory is falling.

• Reiterate Add and SOP-based TP of RM0.71.

3Q23 Results Missed Expectations

• WCT Holdings’ 3Q23 reported core net profit of RM12m (-62% yoy, +3% qoq) brought 9M23 core net profit to RM41m (vs. 9M22’s RM140m, which included land sale gain of RM56m). We deem the results to be tracking below our FY23F core net profit of RM75m but in line with Bloomberg’s consensus core net profit of RM55m.

• The key highlight was 3Q23’s loss before interest and tax (LBIT) of RM5m, which we understand from WCT was due to prolongation costs that resulted in reversal of profits for one project. 3Q23 property development EBIT was RM10m (vs. RM12m in 2Q23). The property investment business in 3Q23 showed the most promise, with an EBIT of RM35m, up 43% yoy due to higher occupancy and rental rates for its mall and hotels.

New Order Wins May be Skewed to 1H24F

• WCT’s RM3bn new construction order win target for FY23F set earlier this year (FY22 new order wins: RM1.4bn) looks too ambitious now with no wins so far. However, with a tenderbook of c.RM12bn and its reputation locally as a competent contractor, we think the lack of order wins so far may just be a timing issue. Its total outstanding orderbook as at Sep 23 was RM3.0bn.

• Its property presales target of RM750m for FY23F, nearly double the RM421m it delivered for FY22, appears on track, in our view. 3Q23 presales was RM327m (vs. 2Q23’s RM108m), bringing 9M23 presales to RM538m. Pavilion Mont Kiara (GDV: RM808m) was launched in Aug 23 and is now 47% sold. Future launches include W City in Johor Golf and Country Club, both the residential and commercial portion (total GDV: RM264m). Another positive note is that its level of unsold inventory as at 3Q23 has fallen by 43% from 4Q22 to RM215m.

SARP Is the Bigger Catalyst

• The bigger catalyst for WCT is the Subang Airport Regeneration Plan (SARP). This would see the airport turn into a regional commercial and maintenance, repair and overhaul aviation hub for narrow-body aircrafts with a maximum capacity of 8m passengers p.a. (vs. 1.5m currently).

• WCT, through its 60%-owned Subang Skypark, currently operates the SkyPark Terminal under a 30-year sublease concession agreement with Malaysia Airports Holdings Berhad (MAHB), which ends in December 2037. With the expansion, this lease would be extended and is likely to include other revenue streams, such as hanger fees, terminal maintenance, car park, duty-free and retail rental income, in our view. Given WCT’s entrenched position in Subang Skypark, we think it should be the frontrunner for the estimated RM1.5bn worth of construction works. The shareholding of WCT and MAHB for the SARP and terms of a new concession agreement has not been finalised yet.

Reiterate Add, SOP-based TP of RM0.71

• While earnings delivery has been choppy, WCT’s current valuation of 0.2x FY23F P/BV looks cheap, in our view,

• Downside risks include slower rollouts of larger infrastructure projects, higher raw material costs, and slowing property sales. Key re-rating catalysts include stronger new order wins in FY24F and stronger property sales.

Source: CGS-CIMB Research - 23 Nov 2023