WCT’s FY18 earnings of RM40.3m (-71% YoY) were below both our and consensus estimates. YTD core PATAMI decreased due to lower contribution from both construction and property divisions, partially offset by higher contribution from property investment segment. WCT’s orderbook stands at c.RM6.0bn, translating into healthy 3.2x cover ratio on FY18 construction revenue. Cut FY19-20 earnings by 13-16% after taking into account higher finance costs and lower share of profits from JV. Maintain SELL with lower SOP-driven TP of RM0.51 (from RM0.53) following the earnings cut.

Below expectations. WCT reported 4QFY18 results with revenue of RM737.9m (+91% QoQ, -27% YoY) and core losses of RM10.8m (from core profit both QoQ and YoY). This brings FY18 core earnings to RM40.3m, decreasing by 71% YoY. FY18 core earnings accounted for 55% and 33% of HLIB and consensus full year forecast respectively, which is below expectations. The results disappointment was mainly due to surge in finance costs and lower contribution from JV.

QoQ/ YoY. Bottom-line turned to core loss mainly due to lower profit contribution from all segments.

YTD. Core PATAMI decreased by 71% due to lower contribution from both construction and property divisions, partially offset by higher contribution from property investment segment.

Healthy orderbook level. WCT’s orderbook stands at c.RM6.0bn, translating into healthy 3.2x cover ratio on FY18 construction revenue. Given the substantial amount of jobs on hand, FY19 orderbook replenishment target is expected to be much lesser than FY18 (jobs secured: c.RM2.5bn) 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.

Forecast. Cut FY19-20 earnings forecast by 15.7% and 13.4% respectively after taking into account higher finance costs and lower share of profits from JV. We will gather further updates during today’s briefing.

Maintain SELL, TP: RM0.51. Maintain SELL rating with lower SOP-driven TP of RM0.51. Our TP is derived from 50% discount on SOP value of RM1.01. This implies P/E of 10.6x for FY19 and 8.1x 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’s prospects.

Source: Hong Leong Investment Bank Research - 1 Mar 2019