Given the substantial amount of jobs secured last year (RM2.7bn), FY19 orderbook replenishment target is set at RM1.0bn. WCT’s outstanding LRT3 work package orderbook stands at RM1.36bn 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. Management is aiming for RM300m sales target in FY19 with RM100m from launching of new projects and the balance from clearing existing completed inventory. WCT’s REIT is planned to launch earliest by end of FY19 with associated asset value up to RM2bn. The company aims to float 20-25% of the stake and raise c.RM400m. Maintained forecast. Maintain SELL rating with unchanged SOP-driven TP of RM0.51 (50% discount on SOP).

We attended WCT’s analyst briefing and walked away feeling neutral. Key highlights as below:

Construction. WCT’s outstanding orderbook currently stands at c.RM6.3bn, translating to 3.4x cover on FY18 construction revenue. 52% of its current orderbook consists of infrastructure jobs with the balance comprising building jobs. Given the substantial amount of jobs secured last year (RM2.67bn), focus will be on execution of current jobs on hand and hence, FY19 orderbook replenishment target is much lesser at RM1.0bn.

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 RM1.36bn (c.21% of outstanding orderbook) 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 RM146m of property sales in FY18 and unbilled sales currently stands at RM118m, imply a rather thin cover of 0.67x FY18 property revenue. WCT’s focus will remain on clearing its completed inventory amounting to GDV of RM950m (inclusive of JV project in Kelana Jaya). Management is aiming for RM300m sales target in FY19 with RM100m from launching of new projects and the balance from clearing existing completed inventory.

Property investment and REIT plan. WCT recorded RM141m revaluation gain on investment properties in 4Q18 and this was mainly due to 20-25% positive rental reversions of Aeon Bukit Tinggi after settlement of lawsuit. WCT’s REIT is planned to launch earliest by end of FY19 with associated asset value up to RM2bn. The company aims to float 20-25% of the stake and raise c.RM400m.

Forecast. Unchanged as the briefing yielded no surprises.

Maintain SELL, TP: RM0.51. Maintain SELL rating with unchanged SOP-driven TP of RM0.51. Our TP is derived from 50% discount on SOP value of RM1.01. Our TP 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 prospect.

Source: Hong Leong Investment Bank Research - 4 Mar 2019