News 

Ikano  mall  contract.  WCT  announced  that  it  was  awarded the  main  contract  package  for  the  new  Ikano  mall  at  Jalan Cochrane,  KL for  RM651.6m.

Contract  details.  The  scope  of  works  involves  a  shopping centre  with  2  levels  of  basement  car  parks,  4  levels  of elevated  car  parks  and  4  lev els  of  retail,  F&B  and entertainment.  Works are scheduled  for completion in 2H16.

Comments 

Sizable  contract  win.  Including  the  Ikano  mall  contract, WCT’s  job  wins  YTD  now  amount  to  RM994m,  surpassing our  assumption  of  RM700m  for  FY14. We estimate that this recent  job  win  would  bring  WCT’s  orderbook  to  RM2.5bn, implying a cover  of 2.3x on FY13 construction revenue.  

In the pipeline .  Looking forward, domestic jobs that WCT is eyeing  include  the  West  Coast  Expressway,  RAPID  works, Warisan  Merdeka  and  Kwasa  Damansara  civil  works. Overseas,  WCT  is  bidding  for  RM3bn  worth  of  works,  all located in Qatar.   

Risks

• Execution  risk,  rising  material prices, project implementation delays, property  sector slowdown  and political risks.

Forecasts

• Although  YTD  orderbook  replenishment  is  stronger  than expected,  earnings impact will be less significant  as it largely compensates  for  the  short fall  in  job  wins  last  year  (FY13: RM670m).
• We  adjust  FY15-16  earnings  upward  by  3.1%  and  2.5%  as we impute the higher  than expected job wins this year.

Rating

HOLD

• Despite  stronger  than  expected  contract  wins  YTD,  we  are not entirely upbeat on WCT as :  (i) it merely compensates for the  shortfall  in  job  wins  last  year;  (ii) intense competition for its  domestic  tenders ;  (iii)  uncertain  timing  for  its  foreign tenders ;   and  (iv)  weak  property  sales  with  1H  at  RM245m vs.  full  year  guidance  of  RM1.2bn  (our  assumption: RM600m).  

Valuation

• Following  the  earnings  increase,  our  SOP  based  TP  has been  increased  from  RM2.29  to  RM2.34. This implies FY14-15  P/E  of 15.2x and 14.5x respectively, inline with its 5 year mean of 15.2x (based  on 1 year forward  earnings).

Source: Hong Leong Investment Bank Research - 30 Oct 2014