News

• Wins Pan Borneo Highway contract. The 70:30 JV between KKB Engineering (non-rated) and WCT has been awarded a RM1.3bn contract for the Pan Borneo Highway (PBH) Sarawak from Sg Arip Bridge to Bintulu Airport Junction. Works are to be completed within 51 months from the date of award (i.e. Oct 2020).

Comments

• Within expectations. This contract award is within our expectations as we previously highlighted in our report (dated 27th May), that the KKB-WCT JV had tendered for 4 packages of the PBH.

• Replenishing well. At a 30% stake in the JV, WCT’s share of the PBH job works out to be RM387m. This brings its YTD job wins to RM521m compared to RM3bn secured for the full year FY15. Assuming a burn rate of RM400m in 2Q, we estimate WCT’s orderbook to now stand at RM3.8bn. This translates to a healthy cover ratio of 3.3x on FY15 construction revenue.

• Potential job wins. Looking ahead, in terms of potential large scale jobs, we understand that WCT has submitted 2 bids for DASH and 4 for SUKE. Each of these packages is estimated to be worth RM1bn with potential awards in 2H16.

Risks

• Inconsistency in earnings delivery from quarter to quarter.

Forecasts

• As YTD job wins of RM521m are still within our full year assumption of RM1bn, we retain our earnings forecast.

Rating

• Maintain BUY, TP: RM2.12

• 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 RM2.12 implies FY16 P/E of 22x but this reduces to 16x in FY17 once earnings kick in. Valuation is also backed by RM1.6bn in net surplus value of its land (RM1.31/share).

Source: Hong Leong Investment Bank Research - 27 Jul 2016