WCT has secured a RM1.8bn contract for construction of Pavilion Damansara Heights Project (Phase 1). With the latest job win, orderbook is now estimated at RM6.8bn, implying a cover ratio of 4.9x. We remain cautious on the macro job flow outlook following the new government’s review on mega projects. Raise earnings forecast by 3-13% after adjusting FY18 orderbook replenishment assumption as YTD construction job wins exceeding our full year target. Maintain SELL with higher SOP-drive TP of RM0.71 (from RM0.67). Despite the healthy orderbook level, the persistent weakness of property market and rising rate environment are major headwinds for its de-gearing initiatives. Moreover, ongoing infrastructure project reviews and cancellations further worsen the construction segment’s prospect.

NEWSBREAK

Pavilion building contract. WCT announced that it has been awarded RM1.77bn building contract from Impian Ekspresi Sdn Bhd for the construction of Pavilion Damansara Heights Project (Phase 1). The scope of works consists of 9 blocks of office tower and 3 blocks of service apartment. The work is expected to commence in September 2018 and completed within a period of 38 months.

HLIB’s VIEW

Second construction job win. This is the second construction job win for the company which brings the YTD sum to RM2.35bn. WCT’s orderbook increases substantially to c.RM6.8bn (from RM5.0bn) which translates to a healthy cover of 4.9x on FY17 construction revenue.

Cautious on job flow outlook. While this contract win is positive, we remain cautious on the overall macro job flow outlook. This follows from the new government’s move to put all mega projects under review which would inevitably result to project rollout delays or an outright cancellation.

Forecast. Increase FY18-20 earnings forecast by 2.8%, 10.4% and 13.0% respectively after adjusting FY18 orderbook replenishment assumption as YTD construction job win exceed our full year target of RM500m. We assume no further job win in the rest of FY18 due to slowing job flow post GE14.

Maintain SELL, TP: RM0.71. Maintain SELL rating but with higher SOP-driven TP of RM0.71 (from RM0.67) following earnings forecast adjustment. Despite the healthy orderbook level, the persistent weakness of property market and rising rate environment are major headwinds for its de-gearing initiatives. Moreover, ongoing infrastructure project reviews and cancellations may further drag the company’s construction segment prospects.

Source: Hong Leong Investment Bank Research - 19 Sept 2018