Results

• WCT reported 4QFY16 results with revenue of RM453m (+9% QoQ, -13% YoY) and core earnings (after removing EIs) of RM26.2m (+30% QoQ, -36% YoY).
• For the full year FY16, core earnings totalled RM100m, recovering +89% YoY.
• Our derivation of core earnings removes (i) forex gains of RM13m, (ii) impact of FRS139 for time value of money on its receivables amounting to -RM15m and (iii) fair value loss on The Ascent of -RM29m as it will be sold below BV.

Deviation

• FY16 core earnings made up 100% of our forecast which is within expectations but below consensus at 86%.

Dividends

• No dividends were declared for FY16 which is a negative surprise (FY15: 4.2 sen).

Highlights

• Decent level of job wins. WCT managed to secure RM1.4bn worth of jobs in FY16 (FY15: RM3bn). With this, we estimate its orderbook to stand at RM4.1bn, translating to a healthy cover 2.6x on FY16 construction revenue.
• Changes in major shareholder. In Nov 2016, WCT saw a significant change in its major shareholder with the emergence of Tan Sri Desmond Lim (TS Lim) taking over the 20% stake previously held by its 2 founding members. We believe that the near term benefit to WCT from this shareholding change is the possibility of its AEON BBT Mall and Paradigm Mall to be injected into PREIT (HOLD, TP: RM1.77) as TS Lim is also a major shareholder in the latter. Apart from that, there is speculation of a possible merger between WCT and Malton (not-rated) given their common major shareholder, TS Lim.

Risks

• WCT?s net gearing is high at 91% while earnings delivery has in the recent past, been erratic from quarter to quarter.

Forecasts

• Unchanged as the results were inline. Rating Maintain HOLD, TP: RM1.97
• Contrary to earlier expectations, management?s guidance on WCT?s new strategic direction seemed to be a status quo rather than a significant value creating move following the changes in its major shareholders in Nov 2016. As such, we fail to see an eventual near term re-rating.

Valuation

• Our SOP based TP of RM1.97 implies FY17-18 P/E of 17x and 14.6x respectively and has taken into account the recently proposed 10% share placement.

Source: Hong Leong Investment Bank Research - 24 Feb 2017