News

• Awarded LRT3 depot. WCT has been awarded the contract by Prasarana to undertake the LRT3 depot works at Johan Setia worth RM185.9m. The job is expected to be completed within 18 months.

South Comments

• 1st job win for the year. This LRT3 depot contract is WCT’s first for the year. In FY16, WCT managed to secure RM1.4bn worth of contracts. With this contract in the bag, we estimate WCT’s orderbook to now stand at RM5.2bn, an all-time high. This translates to a healthy cover ratio of 3.3x on FY16 construction revenue.
• Better margins from infra. The bulk of WCT’s orderbook comprises infra related jobs (>80%) as opposed to buildings. Management guides that construction margins should improve in this year as more infra based jobs will be executed which generally command better margins compared to buildings. For the past 2 years, WCT’s construction EBIT margins have been thin at 3.7-3.8% (after adjusting for EIs).
• Eyeing for more. Management is targeting to add RM2bn in new job wins this year. It has submitted RM2.5bn in tenders and has another RM2.5-3bn which is under preparation.

Risks

• The key risks are its inconsistency in earnings delivery from quarter to quarter and high net gearing (91%).

Forecasts

• Unchanged as YTD job wins of RM185.9m are still within our full year target of RM1bn.

Rating

Maintain HOLD, TP: RM1.97

• The strategic direction brought by its new major shareholder Tan Sri Desmond Lim appears pretty much a status quo. We reckon that any rerating potential is likely to be muted unless earnings delivery becomes more consistent and its de- gearing plans bear fruit.

Valuation

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

Source: Hong Leong Investment Bank Research - 06 Apr 2017