News 

• Secures MRT job. MRT Corp yesterday announced that it has awarded work package V204 of the MRT2 worth RM896.4m to WCT. The job scope involves construction of the viaduct guideway and other associated works from Bandar Malaysia South Portal to Kg Muhibbah. WCT managed to win the contract against 5 other contenders.

Comments 

• More from MRT Corp. This recent contract is WCT’s 2nd contract from MRT Corp. Back in March, WCT secured a RM133m contract for the redevelopment of a police quarters in Gombak to make way for the MRT line. We are not entirely surprised that WCT managed to bag package V204 as management had previously guided for it.
• Strong orderbook boost. With package V204 in the bag, WCT’s YTD job wins amounts to RM1.4bn (FY15: RM3bn). We estimate its orderbook to stand at RM4.7bn. This orderbook level is a new high and translates to a superior cover ratio of 4.1x on FY15 construction revenue.

Risks

• A significant change in WCT’s strategic direction (if any) as brought forth by its new major shareholder would be a potential risk to watch out for.

Forecasts 

• While YTD job wins of RM1.4bn has exceeded our FY16 target of RM1bn, we leave our forecasts unchanged for now pending updates on the potential new strategic direction of WCT as brought forth by its new major shareholder, Tan Sri Desmond Lim.

Rating

• Maintain BUY, TP: RM2.12
• Earnings rebound and sizable orderbook aside, the recent deal involving a new major shareholder, which was done at RM2.50/share (39% premium to last close), could provide some upside excitement.

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 - 10 Nov 2016