News

• Another contract from RAPID. WCT was awarded a RM316m contract from PETRONAS for various civil and infra works at the Utilities, Interconnecting and Offsite (UIO) Facilities at RAPID. The scope of works encompass earthworks, environmental protection, pilling & foundation, architectural, building structures and other civil works which are scheduled for completion within 33 months.

Comments

• 3rd job win at RAPID. We are positively surprised with this contract win as WCT had recently won another contract (RM267m) at RAPID less than a month ago. In totality, this is WCT’s 3rd job win at RAPID totalling RM924m over the last 2 years.

• A record year. With this recent contract, YTD job wins have totalled RM2.4bn, which is WCT’s highest in the past 8 years. We estimate its orderbook to currently stand at RM4bn, translating to a strong cover ratio of 3.5x on FY14 construction revenue. With such strong orderbook replenishment (mostly in 2H), WCT’s earnings visibility has certainly been enhanced significantly.

Risks

• WCT’s net gearing is relatively high at 81.2% and this will stretch to 91% on a proforma basis after including the recent acquisition of TRX land (RM223m).

Forecasts

• YTD job wins of RM2.4bn has surpassed our orderbook replenishment assumption of RM1.8bn. As such, there is an upside potential to our earnings estimate which we are reviewing.
• Our earnings for FY15 is 43% below consensus as the latter has probably included non-operating forex revaluation gains (on balance sheet items) in its forecast.

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 - 13 Nov 2015