News

• Secures contract at RAPID. WCT was awarded a RM267m contract from PETRONAS for various works at the Petchem Interconnecting South Area at RAPID. The scope of works consists of earthworks, concrete works, storm water drainage, roads & paving, underground piping, and utilities which are scheduled for completion within 31 months.

SCooumthm ents

• Job wins continue to pile up. With this recent contract, WCT’s job wins have now totalled RM2.1bn YTD, more than double of that achieved in FY14 at RM993m and also above its long term (7 year) average of RM1.2bn. We estimate its orderbook to currently stand at RM3.7bn, translating to healthy orderbook cover of 3.2x on FY14 construction revenue.

• Breaking the dry spell. The strong YTD job wins has finally allowed WCT to break its relatively slow orderbook replenishment trend. Note that in 3 of the past 4 years, orderbook replenishment has fallen short of its burn rate. While we acknowledge that WCT’s earnings visibility has certainly been enhanced following its robust job wins, we remain concerned on its high net gearing.

Risks

• WCT’s net gearing is relatively high at 81.2% and this will stretch to 91% on a proforma basis after including the acquisition of the TRX land.

Forecasts

• YTD job wins of RM2.1bn has surpassed our orderbook replenishment assumption of RM1.8bn. As such, there is an upside potential to our earnings estimate which we shall be reviewing in due course.

Rating

HOLD TP: RM1.41

• With strong YTD job wins and a healthy orderbook level, earnings visibility has certainly been enhanced. Nonetheless, the stock is not an outright Buy as we remain concerned on its (i) patchy quarterly earnings delivery and (ii) high net gearing.

Valuation

• Our TP of RM1.41 is based on a 10% discount to SOP. This implies FY15 P/E of 22.9x but a more palatable 12.7x for FY16 once earnings recover.

Source: Hong Leong Investment Bank Research - 28 Oct 2015