• HLIB maintains a BUY rating with SOP TP of RM1.81, offers 33.7% upside. Despite lowering SOP TP of RM1.81 (from RM2.27) after imputing a 20% discount to account for potential delays in its de-gearing plans (i.e. REIT and land sales), HLIB still maintains a BUY rating after share prices plunged 26% YTD.

• Our optimism is based on (i) strong orderbook at RM5.4bn, implying a cover of 3.9x on FY17 construction, (ii) unbilled sales stood at RM230m, or 0.5x FY17 property revenue with focus to clear its inventories (totalling RM550m) and target for RM300m in FY18 sales.

• Management also guided for RM2bn in new job wins for FY18, including tenders in excess of RM2.8bn (infra: RM1.7bn and buildings: RM1.1bn). For infra jobs, it is eyeing on (i) remaining packages of the West Coast Expressway; and (ii) Pan Borneo Sabah. WCT remains backed by significant surplus land value (i.e. market value less book value) of RM1.6bn (RM1.16/share).

• Steeply oversold; Poised for potential relief rally. In wake of a “risk off” selldown on the small caps, construction and property stocks due to Trump’s tariff tantrums and the impending GE14, WCT tumbled 26% YTD to end at RM1.20 yesterday. However, we see potential downtrend reversal due to its earnings resilience and undemanding valuations. Key supports are RM1.16 and RM1.11 (26 Aug 2015 low). A successful breakout above RM1.26 (20h SMA) will spur prices higher towards RM1.33 (23.6% FR) and RM1.43 (38.2% FR) before reaching our LT target at RM1.50 (50% FR). Failure to hold near RM1.11 may weaken share prices lower towards RM1.00 psychological levels.

Source: Hong Leong Investment Bank Research - 4 Apr 2018