• WCT is one of the HLIB construction picks with an institutional target price of RM2.12 (based on SOP), or 39.5% upside. WCT’s orderbook s tands at RM3.8bn, implying a healthy cover ratio of 3.3x on FY15 construction revenue. Management continues to guide for RM2bn in new job wins this year (YTD: RM134m), agains t our more cons ervative target of R M1bn. Meanwhile, WCT’s unbilled sales stand at RM551m (1.7x cover on FY15 property revenue). Management maintains FY16 RM600m sales target vs ours of RM350m as we remain cautious on the soft property sentiment.

• Sizable highway jobs on the cards. Management shared that it has submitted 2 bids for DASH and 4 for SUKE. Each of these packages is worth RM1bn on average. It will soon be tendering for 4 packages of the Pan Borneo Highway (Sarawak) via a JV with KKB Engineering whereby WCT will hold a 30% stake. Judging from the awards thus far, each package should be worth RM1.5bn, attributing RM450m to WCT if successful.

• Target to reduce net gearing to 40% from 81% currently. WCT has mapped out several de-gearing initiatives which are (i) disposing 50% of its Serendah land, (ii) sale of earmarked land and buildings, (iii) proposed private placement, (iv) “REIT-ing” its inves tment ass ets and (v) lis ting of its cons truction arm. If successful, this would raise total proceeds of RM2.1bn and cut WCT’s net gearing from the current 81% to 40%.

• Poised for further upside amid bullish construction industry outlook and positive downtrend line breakout. At RM1.52, WCT’s valuations are inexpensive against its peers (FIG1). We believe bullish sector prospect and undemanding valuations would have provided sufficient margin of safety to cushion further sharp downside risks in share price.

• The downtrend resistance breakout yesterday could signal more upside ahead amid bottoming up indicators. Share prices are likely to advance further towards RM1.58 (50% FR) and RM1.68 (76.4% FR) in the near term , before reaching our long term target at RM1.76 (52-week high). Major supports RM1.45 (lower Bollinger band) and RM1.47. Cut loss at RM1.44.

Source: Hong Leong Investment Bank Research - 13 Jul 2016