Given the substantial amount of jobs on hand (RM6.8bn), FY19 orderbook replenishment target is expected to be lesser than this year and is tentatively set at RM1.5bn. WCT’s outstanding LRT3 work package orderbook stands at RM1.39bn and we understand that 10-15% of orderbook value is subject for reduction after taking into account downsizing of project and shelving of one station. WCT recorded RM123m of property sales YTD with an additional RM20m pending SPA and FY18 sales target of RM300m is unlikely to be achieved due to challenging property market. WCT is expected to proceed with establishment of its REIT in 2H19 with aggregate asset value of over RM2bn. Maintained forecast and SELL rating with unchanged SOP-driven TP of RM0.53. (50% discount on SOP)

Construction. WCT’s outstanding orderbook currently stands at c.RM6.8bn, translating to 4.9x cover on FY17 construction revenue. 63% of its current orderbook consists of infrastructure jobs with the balance made up by building jobs. YTD the company has secured RM2.3bn worth of new jobs and we understand that no further job wins are expected for the rest of the year. Given the substantial amount of jobs on hand, FY19 orderbook replenishment target is expected to be much lesser than this year and is tentatively set at RM1.5bn.

LRT3. LRT3 project size has been scaled down and the timeline to completion has been extended from 2020 to 2024. WCT’s outstanding LRT3 work package orderbook stands at RM1.39bn and we understand that 10-15% of orderbook value is subject for reduction after taking into account downsizing of project and shelving of one station.

Property development. WCT recorded RM123m of property sales YTD with an additional RM20m pending SPA. We understand that FY18 sales target of RM300m is unlikely to be achieved due to the challenging property market. Unbilled sales of RM139m imply a rather thin cover of 0.32x FY17 property revenue. WCT’s focus will remain on clearing its completed inventory which stands at RM640m on book as at Nov. Discounts and incentives are being offered to push this.

Property investment and REIT plan. Occupancy rate of Paradigm Mall Johor Bahru (Paradigm JB) is approaching 92% and the operation is breakeven for now. The mall is expected to start contributing to bottom-line starting from FY19. Following the settlement of Aeon Bukit Tinggi lawsuit, WCT is expected to proceed with establishment of its REIT in 2H19. The REIT comprises both Paradigm Mall in PJ and JB, Aeon Bukit Tinggi, Premiere Hotel and New World Hotel and is expected to have an asset value of over RM2bn. Total debt associated with those assets is at c.RM1bn.

Forecast. Unchanged as the briefing yielded no surprises.

Maintain SELL, TP: RM0.53. Maintain SELL rating with unchanged SOP-driven TP of RM0.53. Our TP is derived from 50% discount on SOP value of RM1.07. This implies P/E of 10.3x for FY18, 9.8x for FY19 and 7.7x for FY20. 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 company construction segment prospect.

Source: Hong Leong Investment Bank Research - 28 Nov 2018