WCT and TSR have been jointly awarded a RM677m shopping complex contract from PNB Merdeka Ventures Sdn Bhd. The work is expected to commence on 2 January 2019 and completed within a period of 30 months. Increase FY19-20 earnings forecast by 3.3% and 3.9% respectively after adjusting FY18 orderbook replenishment assumption as YTD construction job wins exceeds our previous full year assumption of RM2.3bn. Maintain SELL rating but with higher SOP driven TP of RM0.54 (from RM0.53) following earnings forecast adjustment. TP is derived based on 50% discount to SOP value of RM1.09. 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

Merdeka 118 shopping complex contract. WCT and TSR Capital (TSR) have been jointly awarded a RM677m shopping complex contract from PNB Merdeka Ventures Sdn Bhd. The scope of works includes the construction of an 8 level shopping complex podium. The work is expected to commence on 2 January 2019 and completed within a period of 30 months. WCT and TSR will form a JV company in the ratio of 51:49 respectively to undertake the contract.

HLIB’s VIEW

Third construction job win. This is the third construction job win for the company which brings the YTD sum to c.RM2.7bn after taking into account WCT effective interest in this contract. WCT’s orderbook now stands at c.RM7.2bn which translates to a decent cover of 5.2x 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 FY19-20 earnings forecast by 3.3% and 3.9% respectively after adjusting FY18 orderbook replenishment assumption as YTD construction job win exceeds our previous full year assumption of RM2.3bn.

Maintain SELL, TP: RM0.54. Maintain SELL rating but with higher SOP-driven TP of RM0.54 (from RM0.53) following earnings forecast adjustment. TP is derived based on 50% discount to SOP value of RM1.09. This implies P/E of 10.5x for FY18, 9.6x for FY19 and 7.5x 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 may further drag the company’s construction segment prospects.

Source: Hong Leong Investment Bank Research - 24 Dec 2018