Results

• WCT reported 4QFY17 results with revenue of RM579m (+23% QoQ, +28% YoY) and core earnings of RM39m (-3% QoQ, +48% YoY). This brought full year FY17 core earnings to RM154m, increasing 54% YoY.

• In deriving core earnings, we have adjusted for the following in 4Q: (i) fair value gain on Paradigm JB of RM224m, (ii) impairment loss for receivables in Qatar of RM165m and (iii) fair value loss for its Paradigm development (mall, hotel and residential) of RM37.8m.

Deviation

• FY17 core earnings were above expectations at 107% of our full year forecast but within consensus at 105%.

Dividends

• 3 sen dividend (FY16: 1.25 sen).

Highlights

• Impairment for MOI building in Qatar. The RM165m impairment is from the Ministry of Interior (MOI) building job in Qatar which has already been completed. Management shared that the impairment was done in light of the current environment in Qatar and that there are no longer any outstanding receivables related to the job post impairment.

• Core construction performance fares better. Despite the 11% drop in construction revenue for FY17, core EBIT (ex. impairment) rose 157% YoY. Core EBIT margin expanded YoY from 3.8% to 10.9% in FY17 thanks to better margins derived from its newer jobs and the absence of legacy jobs that plagued FY16.

• Strong job wins for FY17. WCT managed to secure RM1.9bn worth of new jobs in FY17 (FY16: RM1.4bn). We estimate its orderbook to now stand at RM5.4bn, implying a cover of 3.9x on FY17 construction revenue.

• Challenging for property. Despite the 44% YoY increase in property revenue, core EBIT fell 9% for FY17. We believe this was likely due to more aggressive discounts and incentives given which may have spurred sales at the expense of margins.

Risks

• High net gearing at 88%.

Forecasts

• While the core results were above expectations, we leave our forecast unchanged for now pending key takeaways from today’s analyst briefing.

Rating

Maintain BUY, TP: RM2.29

• Albeit with a cautious stance, we are turning positive on WCT given its improving core results. Short term share price performance may be weak due to the impairment made but we would view this as an opportunity to accumulate.

Valuation

• Our SOP based TP of RM2.29 implies FY18-19 P/E of 20.1x and 17.7x respectively.

• While this is rather steep, WCT has significant surplus land value (i.e. market value less BV), backing 74% of its market capitalisation.

Source: Hong Leong Investment Bank Research - 27 Feb 2018