News

• Wins LRT3 contract. WCT announced that it has been awarded a RM840m contract by Prasarana for the LRT3. The works are to be completed within 33 months.
• JV for TRX land. In a separate announcement, WCT will be undertaking a proposed JV with CCCG Overseas Real Estate (CORE) and China Communications Construction Company (CCCC) to develop a plot of land at TRX. The shareholding in the JV shall constitute WCT (20%), CORE (65%) and CCCC (15%). For the 80% stake in the JV, CORE and CCCC will pay WCT, the owner of the said land, RM200m.

South Comments

• Strong boost for job wins. With the LRT3 contract in the bag, this would boost WCT’s YTD job wins to RM1bn. This contract is WCT’s 2nd LRT3 related job secured this year, with the earlier one being the depot at Johan Setia (RM186m). The contract win is within management’s guidance as it previously mentioned that it has bid for 4 packages of the LRT3 worth RM800m to RM2bn each. We estimate WCT’s orderbook to now stand at a new record high of RM5.2bn, translating to a cover of 3.5x on FY16 construction revenue.
• JV to ease capital commitments. The said TRX land measures 1.65 acres and was acquired by WCT from TRX City back in Oct 2015 for RM223m comprising 10% in cash and 90% in construction of infra and roads for the latter. Based on the recent price tag for CORE and CCCC’s 80% stake in the JV, this now effectively values the said TRX land at RM250m. We are positive on this JV as it eases WCT’s future capital commitments. Without the JV, WCT’s cash flow could be strained from (i) the construction contract for TRX as it is partially paid in land and (ii) eventual development of the land. The previous development plan was for a service residence with GDV of RM1.1bn. On a proforma basis, the JV (i.e. 80% sale of TRX land) will reduce WCT’s net gearing from 86% (2QFY17) to 80%.

Risks

• Derailment of its de-gearing plans.

Forecasts

• Unchanged as YTD job wins is as per our FY17 assumption of RM1bn. There could be upside to our earnings forecast should more job wins materialise this year.

Rating

Maintain BUY, TP: RM2.26

• Albeit with a cautious stance, we are turning positive on WCT given its results recovery. Coupled with its 22% share price decline since May, we feel there is now sufficient buffer to warrant our BUY rating.

Valuation

• Our SOP based TP of RM2.26 implies FY17-18 P/E of 23x and 20x respectively. While this is rather steep, WCT has significant surplus land value (i.e. market value less BV), backing >60% of its market capitalisation.

Source: Hong Leong Investment Bank Research - 30 Aug 2017