Highlights

We attended 9MFY13 briefing with the following salient points:

Labour issues… WCT explained that the weak 3Q core PATAMI (RM38.4m; YoY: -28%, QoQ: -16%) was due to shortage of foreign labours faced by its subcontractors which had resulted in slower than expected progress for both construction and property development projects. The labour shortage was due to the Government’s 6P programme to clamp down on illegal immigrants. To resolve this issue, WCT has taken proactive steps to supply foreign labours to its subcontractors.

Construction… Secured an additional RM136m variation order for the Qatar Government Administrative Office project and RM50m for smallish local projects. Hence, bringing YTD new contract wins to RM670m, which is way off the management’s annual order book replenishment target of RM2bn (RM1bn local and RM1bn overseas). Overall, external order book is still healthy at RM2.2bn (see Figure #1), translating to 2.2x FY12’s construction revenue.

Prospects… Still hopeful of securing a RM1bn Qatar infrastructure project whereby the tender had some specification changes, requiring WCT to submit a fresh bid. The management now expects a decision by early 2014. As for the RM1.6bn Putrajaya Parcel F commercial building project, it is still under negotiations due to the implication of GST charges. WCT’s chances remain strong to win a package worth RM300m-400m.

Property… Achieved new property sales of RM237m in 3Q, bringing 9MFY13 new sales to RM462m, 60% of RM775m FY13 sales target. Sales were mainly driven by the launch of Medini Signature Condo (GDV: RM418m) in Aug-13. New launches for Ascent@Paradigm (GDV: RM200m) and Laman Greenville (GDV: RM256m) which are pending for advertisement and sale permit, have achieved bookings of RM80m and RM130m respectively. Overall, unbilled property sales climbed to record high of RM613m, translating to 1.3x FY12’s property revenue (see Figure #2).

KLIA2… Management remains hopeful that the new airport will be ready by May-14. 77% of the floor space has been rented out. Gateway@KLIA2 is expected to be completed by year end.

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

Although we favour WCT for its prudent management as well as growing property and recurring income divisions, major contract wins has been elusive. Coupled with the potential start-up losses from Gateway@KLIA2 and slowdown in the property sector, we are maintaining our HOLD call on WCT.

Valuation

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

Source: Hong Leong Investment Bank Research - 25 Nov 2013