News

• Secures contract from Kwasa Land. WCT was awarded a RM127.4m contract from Kwasa Land for common infrastructure works in Kwasa Damansara township. The job is scheduled for completion in Oct 2017 (2 years).

• Scope of works. The overall scope of works would involve site clearance and preparation, earthworks, roads, drainage, sewerage reticulation and treatment plant, water reticulation, park and ride facility, electrical infra and landscaping.

Comments

• 2nd job win for the year. This contract is the 2nd job win for WCT this year and its 1st domestically. YTD job wins currently amount to RM975m, making up 81% of our full year assumption of RM1.2bn but still far away from management’s target of RM2bn.

• Building up but more needed. With this job in the bag, WCT’s orderbook is estimated to stand at RM2.6bn, translating to a cover ratio of 2.3x on FY14 revenue. While this ratio is not exactly low (peers average: 2.7x), we opine that more contract wins are needed to propel growth as WCT’s orderbook replenishment has lagged behind its burn rate in 3 out of the last 4 years.

Risks

• Slow orderbook replenishment and softening property market.

Forecasts

• Our forecasts are unchanged as YTD job wins are still within our full year target.

Rating

HOLD TP: RM1.23

• Whilst management is upbeat on its construction prospects, we caution on the highly competitive landscape for jobs that it is gunning for. Although job wins have been decent YTD, the key is to actually bring it above its burn rate which we remain sceptical.
• Nonetheless, downside should be mitigated by WCT’s recent favourable arbitration ruling which would see total cash infusion of RM1.2bn potentially over the next 2-3 years.

Valuation

• Our TP of RM1.23 implies a hefty FY15 P/E of 20.4x but a more palatable 11.7x for FY16 once earnings recover (this being the caveat given its inconsistency in earnings delivery).

Source: Hong Leong Investment Bank Research - 21 Sep 2015