With the potential slowdown in government contracts, WCT has shifted its focus to private sector jobs. Potential job wins could come from its sister companies (RM2bn). De-gearing initiatives such as private placement and REIT may have hit a temporary snag but RM116m worth of land sales are forthcoming. WCT’s share price has fallen 51% YTD bringing it back to the GFC levels (2009) and trading at 0.37x P/B. We see value emerging and maintain BUY with RM1.09 TP.

Orderbook level healthy but... WCT’s orderbook stood at RM5.2bn as of 1QFY18, implying a strong cover of 4x on FY17 construction revenue. The bulk of its orderbook is skewed towards infra related jobs (85%) which is WCT’s forte and traditionally has garnered higher margins vs building jobs.

...cautious on job flow outlook. Following the change in government post GE14, we have turned cautious on the overall macro job flow outlook for the construction sector. The new administration has stated that it will put all mega projects under review to ensure that the terms are fair to the government and country. We feel that this will result to project award delays (as they are reviewed) or in the worst case, an outright cancellation.

Turning to private sector jobs. Management echoes our view on the potential slowdown in government job flows as explained above. As such, WCT aims to bid for more private sector jobs going forward. Its current tenderbook stands at RM6.6bn, of which RM4.9bn are building related and RM1.7bn infra based. For the former, RM2bn are tenders for jobs from its sister companies (i.e. Malton and Pavilion Group) which includes the upcoming Pavilion Damansara Mall (RM1bn). We gather that the chunk of WCT’s infra bids are related to the Pan Borneo Highway Sabah. With the review of mega projects on the cards, we reckon that an award outcome is unlikely to materialise anytime soon.

Flattish property sales. WCT recorded RM45m of property sales in 1Q (1QFY17: RM49m) with an additional RM41m pending SPA. Unbilled sales of RM177m imply a rather thin cover of 0.4x FY17 property revenue. WCT’s focus will remain on clearing its completed inventory which stands at RM624m. Discounts and incentives are being offered to push this. Come 3Q, WCT will have an additional RM229m to its property inventory with the completion of Sapphire Residence (Paradigm PJ) which will only be sold upon completion (registrations are now open).

De-gearing hits a snag. While WCT’s de-gearing plans are still on the cards (1QFY18 net gearing: 95%), we feel that some of these initiatives may have hit a temporary snag. With WCT’s share price down 51% YTD, we do not think that the proposed 10% private placement will proceed in the near term. For its REIT proposal, we feel this is unlikely to take place this year due to (i) rising yields for REITs, (ii) sorting out of the AEON lawsuit for BBT Mall and (iii) awaiting for better rental numbers for Paradigm JB to eventually be included into the REIT. On a brighter note, WCT has inked 3 SPAs for land disposals (BBT and Serendah) totalling RM116m.

Forecast. Unchanged as the briefing yielded no surprises.

Maintain BUY, TP: RM1.09. Whilst we acknowledge the increased risk from an uncertain job flow outlook coupled with high net gearing (1QFY18: 95%), we believe this has already been reflected by its 51% share price decline YTD. Now trading at FY18-19 P/E of 8x and 7.1x, WCT’s share price is back to the level last seen in 2009, i.e. during the Global Financial Crisis. We value emerging at only 0.37x P/B.

Source: Hong Leong Investment Bank Research - 25 May 2018