Highlights

We attended WCT’s 1Q14 briefing and came away feeling lukewarm about its near term outlook:

Healthy 1Q14… WCT swung from core net loss of RM5.2m in 4Q13 to RM46.9m net profit in 1Q14. However, its topline and bottomline were down 5% yoy and 7% yoy respectively, we believe due to declining orderbook from the construction division and progress billings from the property side.

Construction... No new awards YTD, as the outlook remains challenging. Job wins declined from RM1.1bn in FY12 to RM670m in FY13, well below its RM2bn annual order book replenishment target. Key targeted projects include Kwasa Land (2000 acres, RM1.0bn earthworks, but WCT likely to get only a portion) and Petronas RAPID (RM400m Phase 2 earthworks, outcome known in 1-2 months). In Qatar, it is bidding for infrastructure projects (roads, expressways) and government office buildings, as well as a RM2-3bn theme park (bidding on JV basis).

Property Development... WCT is targeting RM1.2bn sales in FY14, vs. RM499m in FY13. This will be on back of RM2.32bn of launches in FY14, of which RM1.6bn originate from Klang Valley. In 1Q it has already achieved RM218m of pre-sales, mainly coming from Laman Greenville @ Klang South and Paradigm Residences @ Kelana Jaya. With 30% of its launches coming from Johor/Medini, we see risk here given other Johor developers like UEMS have been delaying their launches.

Property Investment... We believe impact will remain minor this year. Its 70%-owned KLIA2 Gateway finally commenced operations on 2 May 2014 and WCT believe it can turn in a modest profit of RM5-10m in the first year of operations. Elsewhere, AEON BBT recently had a modest rental reversion of 6-7% and the JB mall remains on-track 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

Maintained.

Rating

HOLD

While 1Q results have somewhat normalised, we remain lukewarm on its near term outlook given: (1) Major contract wins have been elusive; (2) RM1.2bn sales target may be too bullish given slowdown in property sector, particularly in Johor; and (3) Potential start-up losses from Gateway@KLIA2. All in, we are maintaining our HOLD call on the company due to the lack of upside catalyst.

Valuation

Maintain TP at RM2.26 based on 14x average FY14-15 earnings.

Source: Hong Leong Investment Bank Research - 26 May 2014