Highlights

We attended WCT’s 2QFY14 briefing and came away feeling NEUTRAL about its near term outlook.

Soft 2Q results… 2Q performance was weak with both revenue and core earnings declining by 17% YoY and 19% YoY respectively. This was due to weak contribution from both the construction and property development division as the former has yet to significantly replenish its order book while new property sales for the latter has been slow.

Construction… Insofar, WCT has only secured one project worth RM342m for the construction of RAPID’s common access road. This is a far cry from its annual order book replenishment target of RM1bn local jobs and RM1bn overseas jobs. Despite the disappointing new contract wins over the past few years, management reiterated its prudent stance when bidding for contracts.

Overall, WCT has tendered for RM4.6bn worth of contracts whereby overseas prospects comprises of RM1.5bn. The division has RM1.88bn outstanding order book, translating to 1.6x FY13’s construction revenue.

Property… Achieved only RM245m of property sales (inclusive of bookings) which is disappointing compared to its FY14 sales target of RM1.2bn. Management acknowledged that sales in Johor, especially for high rise is extremely slow and will be revising lower its FY14 property sales target and “re-size” its units which is within the affordable range. On a positive note, Paradigm Residences, Kelana Jaya, which has a GDV of RM483m has finally obtained the necessary permits and will be officially launched soon. Overall, the division has an unbilled property sales of RM537m, translating to 1.2x FY13’s property revenue.

Gateway to profits… With KLIA2 finally in operation, its shopping mall (Gateway) has shown encouraging numbers. However, management remains cautious as it is expecting some start-up teething operational issues. Overall, it expects Gateway to contribute small profit for FY14.

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

We remain NEUTRAL on WCT’s near term outlook given: (1) Major contract wins have been elusive; (2) RM1.2bn property sales target may be too bullish given the 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(s).

Valuation

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

Source: Hong Leong Investment Bank Research - 25 Aug 2014