News

• Wins WCE job. WCT was awarded a RM283m subcontract from IJM (BUY, TP: RM3.92) to undertake various sections of the West Coast Expressway. The scope of works include site clearance, earthworks, geotechnical works, drainage, box culverts, sub base, road base, pavement, traffic signs, utilities, erosion control and environmental protection which is scheduled for completion within 3 years.

Comments

• Hitting a record high. We are positively surprised that WCT managed to land this contract given its already robust job wins in the past few months. With this recent contract, YTD job wins have totalled RM2.7bn, which is WCT’s highest in the past 8 years. We estimate its orderbook to currently stand at RM4.3bn, translating to a strong cover ratio of 3.7x on FY14 construction revenue.

• Enhanced earnings visibility. Given its strong orderbook replenishment (mostly in 2H), WCT’s earnings visibility has certainly been enhanced significantly. To recap, job wins have been weak previously with orderbook replenishment falling short of its burn rate in 3 of the last 4 years.

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 (RM223m).
• Earnings delivery has also been very patchy, swinging drastically from quarter to quarter.

Forecasts

• YTD job wins of RM2.7bn has surpassed our orderbook replenishment assumption of RM1.8bn. As such, there is an upside potential to our earnings estimate which we are reviewing pending its results (24th Nov) and briefing (25th Nov) next week.
• Our earnings for FY15 are 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. Our HOLD rating is under review with a potential upgrade on the cards.

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 - 17 Nov 2015