News

• Secures another LRT3 contract. WCT announced that it has been awarded a RM640m contract from Prasarana for Package GS02 of the LRT3. The job scope includes 2.9km viaduct guideway from Merchant Square to Suria Damansara with 2 stations and is expected to be completed within 35 months.

Comments

• 3rd time lucky. This contract win is WCT’s 3rd for the LRT3. It previously secured the Johan Setia depot (RM186m) in April and Package GS03 - 2.8km viaduct from Suria Damansara to Temasya Glenmarie (RM840m). We are positively surprised that WCT managed to clinch 2 viaduct packages for the LRT3 as past precedence (i.e. LRT ext, MRT1 and MRT2) did not seen more than 1 package awarded to the same contractor.
• Orderbook scales new highs. With this recent contract, WCT’s YTD job wins now totals at RM1.7bn (all being from the LRT3). WCT’s orderbook stood at RM4.4bn in 2QFY17. After adding on 2 packages of the LRT3 secured since then, coupled with an estimated burn rate of RM400m in 3Q, we estimate its orderbook balance to now stand at RM5.5bn. This implies a strong cover of 3.7x on FY16 construction revenue.

Risks

• Derailment of its de-gearing plans.

Forecasts

• As YTD job wins of RM1.7bn have exceeded our FY17 assumption of RM1bn, we adjust our earnings model accordingly to reflect this.

Rating

Maintain BUY, TP: RM2.29

• Albeit with a cautious stance, we are turning positive on WCT given its results recovery and de-gearing plans that has been laid out by its new top management.

Valuation

• Following our earnings upgrade, our SOP based TP is raised slightly from RM2.26 to RM2.29. This implies FY17- 18 P/E of 23.2x and 20x respectively.
• While the implied P/E valuations at our TP appear steep, we opine that WCT has a significant surplus land value (i.e. market value less BV), backing 67% of its market capitalisation.

Source: Hong Leong Investment Bank Research - 06 Oct 2017