News

WCT has secured a RM169.3m contract from 1MDB Real Estate S/B for Zone 3 on the proposed earthworks, retaining walls and foundation works for Phase 1 of Tun Razak Exchange (TRX). The contract duration is 26 months.

Highlights

Smaller than expected! The latest project came as no surprise to us as we were anticipating for it since last year (please refer to our report “Capacity to Contract” dated 8 Aug-12). However, the size of the contract is relatively disappointing as we were expecting for a much bigger contract value of RM200m-300m. We believe that 1MDB may have carved the earthworks-related packages (worth a total of >RM1bn) to smaller parcels to match the development progress for TRX. That said, by having a foothold in TRX, WCT has better prospects of securing future job opportunities in TRX due to lower mobilisation costs and other synergistic benefits.

Still decent! Nonetheless, it is still a good win for WCT as the RM169.3m contract value represents 16.7% of FY12’s construction revenue and 6.4% of its previous outstanding order book of RM2.6bn. YTD, WCT has secured RM484.3m worth of projects, making up 32% of our RM1.5bn order book replenishment assumption for FY13.

1.6 sen/share! Assuming a 10% PAT margin, this project will translate to ~1.6 sen/share (FD: ~1.2 sen/share) for WCT.

Earnings visibility! Overall, WCT’s outstanding order book has been lifted slightly to RM2.8bn (see Figure #1), translating to 2.8x FY12’s construction revenue and 1.1x order book-to-market cap ratio.

Risks

Execution risk; Regulatory and political risk (both domestic and overseas); Rising raw material prices; Unexpected downturn in the construction and property sector; and Failure in securing new sizable construction contracts.

Forecasts

Unchanged as the contract win is already part of our RM1.5bn order book replenishment assumption for FY13.

Rating

HOLD

• Positives: (1) Major contract wins; (2) Growing property investment income; (3) Strategic land banking exercise; (4) Listing of property division.
• Negatives: (1) Failure to secure new sizable projects; (2) Slower than expected take up rate for property launches.

Valuation

Target Price maintained at RM2.41 based on unchanged 14x average FY13-14 earnings.

Source: Hong Leong Investment Bank Research - 17 Apr 2013