Highlights

We attended WCT’s 1QFY13 briefing yesterday. Below are the salient point:

Construction… The strong surge in construction activities during 1Q were driven largely by local projects i.e. Medini Iskandar earthworks, Gateway2@KLIA2 and Vale civil works. There was a variation order of RM20m which helped mitigated the effect of arbitration losses of RM26.3m. Hence, construction earnings would have been much stronger. Outstanding order book stood at RM2.6bn (see Figure #1), translating to 2.5x FY12’s construction revenue.

Prospects… Still in the running for the RM800m Universiti Malaysia Sabah teaching hospital and infrastructure-related works for the Rubber Reserve Institute development land worth ~RM1bn. Other tenders aimed are Phase 2 of RAPID civil works and certain packages of West Coast Expressway. The recently cancelled Oman highway project will be retendered under the rationale of redesign and value engineering works. YTD, WCT has secured RM484m worth of projects, making up 32% of our RM1.5bn order book replenishment assumption for FY13.

Property… Achieved lower YoY new property sales of RM119m (4QFY12: RM78m, 1QFY12: RM205m), driven by Bandar Bukit Tinggi (BBT) launches. For FY13, new sales target has been revised upwards from RM700m to RM775m, largely derived from Medini Signature and BBT area. Overall, WCT has an unbilled property sales of RM496m (see Figure #2), translating to 1.1x FY12’s property revenue.

Delayed Gateway… Due to delays in completing KLIA2, the opening of Gateway@KLIA2 has also been delayed tentatively to 4QFY13. Although the concession duration will also be pushed back accordingly, monetary compensation and rental rebate will be given to tenants which have committed earlier on. As of end April, 72% of floor space has been rented out.

Foreign shareholding… Foreign shareholding has crept up slightly from 12% to 13.4% as of end April.

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.

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 - 27 May 2013