Results

• WCT reported its 3QFY17 results with revenue of RM470m (+23% QoQ, +13% YoY) and core earnings (ex. forex) of RM41m (+8% QoQ, +103% YoY).

• Cumulative 9M revenue totalled RM1.33bn (-10% YoY) while core earnings totalled RM116m (+57% YoY).

Deviation

• 9M core earnings made up 84% of our full year forecast (consensus: 79%) which is above expectations.

Dividends

• No dividend declared.

Highlights

• Healthy construction margin recovery. Although 9M construction revenue fell 22% YoY, EBIT staged a strong increase of 130%. We are pleased to note the YoY recovery in 9M construction EBIT margin from 3.6% to 10.7%. The recovery was fuelled by local jobs which command healthy margins as opposed to legacy jobs which dragged margins in the past. Overall, management expects better margins this year given the higher proportion of infra contracts that will be executed (as opposed to buildings).

• Strong on job wins. YTD WCT managed to clinch 3 jobs totalling RM1.7bn associated with the LRT3. We estimate its orderbook to stand at RM5.6bn as of end 3Q. This orderbook level is an all-time high for WCT and translates to a strong cover of 3.7x on FY16 construction revenue.

• Property still tough. While 9M property revenue increased 46% YoY, EBIT declined by 25%. We believe this is likely due to more aggressive discounts and incentives given which may have spurred sales at the expense of margins. Management’s focus for this year remains on driving sales from existing and incoming inventories.

Risks

• High net gearing of 87%, although we note that this has reduced from 95% in 1Q.

Forecasts

• While the results were above expectations, we leave our forecast unchanged for now pending key takeaways from today’s analyst briefing. Any potential revision to our estimates is likely to be upward biased.

Rating

Maintain BUY, TP: RM2.29

• Albeit with a cautious stance, we are turning positive on WCT given its results recovery. Coupled with its 29% share price decline since mid-May, this leaves sufficient buffer to reinforce our BUY rating.

Valuation

• Our SOP based TP of RM2.29 implies FY17-18 P/E of 23.2x and 20x respectively.

• While this is rather steep, WCT has significant surplus land value (i.e. market value less BV), backing 69% of its market capitalisation.

Source: Hong Leong Investment Bank Research - 23 Nov 2017