Results

• WCT posted 1QFY15 results displaying revenue of RM352m (-25% YoY, +9% QoQ) and earnings of RM33m (-17% YoY, +223% QoQ).

• Other income was unusually high at RM22m which we deduce, was due to RM18m in forex gains compared to RM6m in forex losses during the same period last year. We believe the forex gains resulted from its Qatar contracts whose local currency (i.e. Riyal) is pegged to the USD which appreciated during the quarter.

Deviation

• 1QFY15 earnings made up 28% of our full year estimates (23% of consensus) which are above expectations. The stronger than expected results was primarily due to forex gains.

Dividends

• None. Usually declared in 2Q and 4Q.

Highlights

• Job wins off to a good start. WCT’s YTD job wins currently stands at RM868m comprising of the Lusail development contract in Qatar. Its orderbook currently stands at RM2.6bn, translating to 2.3x FY14 construction revenue.

• Ramping up on tenders. WCT is currently bidding for RM3.7bn worth of projects (excluding the RM15bn PDP role for the Penang Transport Masterplan). On top of that, it is in the midst of preparing for another RM6bn in tenders. We gather that this includes the PDP role for the LRT3 where it will be submitting its proposal in a JV with MTD. We remain cautious on WCT’s job win prospects domestically as it faces intense competition for most of the jobs that it is bidding for.

• Challenging for property sales. Property sales amounted to RM127m in 1Q compared to management’s full year target of RM650m and our more conservative assumption of RM450m. We reckon that sales will remain lacklustre given the softening property market. Unbilled sales currently amounts to RM658m, implying 1.7x FY14 property revenue.

Risks

• Stiff competition for jobs that it is bidding for and slow property sales.

Forecasts

• Given strong job wins YTD, we raise FY15-16 earnings by 6% and 17% respectively as we impute higher than expected orderbook replenishment.

Rating

HOLD, TP: RM1.73 (ex. rights)

We upgrade our rating from Sell to HOLD with higher ex rights TP of RM1.73 from RM1.40 previously. Prospects are looking less gloomy for WCT following better than expected job wins YTD but still insufficient for a buy in.

Valuation

• Our TP of RM1.73 on an ex rights basis is based on the SOP method.

Source: Hong Leong Investment Bank Research - 26 May 2015