Highlight

We attended FY13 briefing with the following salient points:

Weak 4Q… Results were mainly dragged down by RM40m provision in the construction division due to anticipated higher cost for its existing building projects, while the property division suffered another slow quarter due to labour shortages.

Lost some… For FY13, WCT failed to meet its RM2bn annual order book replenishment target, securing only RM670m worth of projects. The company lost out in the tenders for Putrajaya Parcel F commercial building and Qatar Al Rayyan road projects, while the Sabah teaching hospital has been shelved by the Government.

Being prudent… WCT reiterated their prudent stance when bidding for projects following the bad experience for Bakun dam and Dukhan highway. For FY14, job prospects are WCE packages, Kwasaland civil works, KL Sentral Linkway and Putrajaya Parcel Z commercial buildings. As for overseas projects, WCT will remain focused in Qatar given the potential developments for World Cup 2022. However, management highlighted that competition has increased with rising cost structure. Hence, margins have been squeezed from mid-double digits to high single digit.

Awaiting AP… Achieved new property sales of RM37m in 4Q, bringing FY13 new sales to RM499m, 64% of RM775m FY13 sales target. The missed target was mainly due to issues in obtaining the advertising and sales permit whereby the division had bookings of RM200m pending to be formally converted into sales. For FY14, the division is aiming to achieve new property sales of RM1.2bn which may be a bit too bullish.

Earnings visibility… Overall, construction external order book is still healthy at RM2.1bn, translating to 1.8x FY13’s construction revenue while unbilled property sales stood at RM575m, translating to 1.3x FY13’s property revenue.

Recurring income… AEON BBT and Paradigm Mall continues to do well. The JB mall will start construction this year and is expected to be completed by mid-2016.

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

FY14 earnings slashed by 8% to factor in lower construction earnings and property sales while introducing FY15 earnings forecast.

Rating

HOLD

Despite the temporary setback in 4Q results, WCT’s fundamentals remain intact. However, major contract wins has been elusive, coupled with the potential start-up losses/delays from Gateway@KLIA2 and slowdown in the property sector, we are maintaining our HOLD call on the company due to the lack of upside catalyst.

Valuation

Due to lower earnings, TP reduced by 6.2% to RM2.26 from RM2.41 based on 14x average FY14-15 earnings.

Source: Hong Leong Investment Bank Research - 27 Feb 2014