News

• Redevelopment of police quarters. WCT was awarded a RM133.9m contract from MRT Corp to redevelop the existing police quarters at Gombak. The scope of works include demolishing the existing quarters, building 1 block of 20-storey new quarters with 300 units, external infra works and interior works to be completed in 28 months.

Comments

• Further orderbook boost. The contract represents WCT’s first job win for the year. To recap, WCT managed to amass a record RM3bn in new job wins last year. We estimate its orderbook to currently stand at RM4.3bn, an all-time high. This translates to a healthy cover ratio of 3.3x on FY15 construction revenue.

• What’s in the pipeline? This year, WCT is gunning for RM2bn in new job wins against our more conservative assumption of RM1bn. Via a JV with KKB Engineering (Not Rated), WCT is one of the 17 prequalified consortiums for the 10 packages of the Sarawak Pan Borneo (RM16bn). Apart from that, WCT is also targeting for (i) external infra works at TRX, (ii) smaller RAPID packages and (iii) highway jobs such as WCE, DASH and SUKE. It has also been prequalified for the LRT3 (RM9bn), MRT2 (RM28bn) and KL118 infra works.

Risks

• Inconsistency in earnings delivery from quarter to quarter.

Forecasts

• As YTD job wins of RM133.9m are still within our full year assumption of RM1bn, we retain our earnings forecast.

Rating

• Maintain BUY, TP: RM2.15
• We expect WCT’s earnings to see a reversal of fortunes this year, underpinned by its mammoth orderbook. The impending listings of its REIT and construction arm are telltale signs that a positive earnings momentum is forthcoming.

Valuation

• Our SOP based TP of RM2.15 implies FY16 P/E of 22x but this reduces to 17x in FY17 once earnings kick in. Valuation is also backed by RM1.7bn in net surplus value of its land (RM1.39/share).

Source: Hong Leong Investment Bank Research - 1 Apr 2016