WCT’s 1HFY19 earnings of RM33m (-28% YoY) were within ours but below consensus expectations. YTD core PATAMI decreased due to lower contribution from construction segment and higher finance costs. In a separate announcement, WCT announced that they have received a letter of intent for construction of Pavilion Damansara Heights Development- Parcel 2 with contract value of RM1bn pending finalisation. Maintain forecast as the results are inline and we prefer to maintain our FY19 job replenishment target pending finalisation of the Pavilion contract. Maintain SELL rating with unchanged SOP driven TP of RM0.50. Our TP is derived from 50% discount on SOP value of RM1.00. Despite the healthy orderbook level, the persistent weakness of property market caused by oversupply issue is a major headwind for its de gearing initiatives.

Within expectations. WCT reported 2QFY19 results with revenue of RM450.1m (-2% QoQ, -24% YoY) and core earnings of RM22.7m (+120% QoQ, +274% YoY). This brings 1HFY19 core earnings to RM33.0m, decreasing by 28% YoY. The core earnings accounted for 51% of our full year forecast (consensus: 32%) which is within ours but below consensus expectations.

QoQ. Core PATAMI more than doubled due to higher contribution from both construction and property development segments. Recall that 1Q19 was a low base due to low contribution from property development segment.

YoY. Core PATAMI more than tripled due to higher contribution from both property development and investment divisions. Again this was a low base effect as low contribution from property development segment and high tax rate dampened the 2Q18 results.

YTD. Core PATAMI decreased by 28% due to lower contribution from construction segment and higher finance costs.

Another job from Pavilion. In a separate announcement, WCT announced that they have received a letter of intent for construction of Pavilion Damansara Heights Development- Parcel 2 which consists of 1 block of 32 storey office and hotel, 2 blocks of residential tower and also a MRT link bridge in Pavilion Damansara Heights. The proposed contract value is c.RM1bn which is still subject to further negotiations and finalisation. This contract would bring YTD job win to RM1bn (first for FY19) which exceeds our orderbook replenishment target of RM500m.

Forecast. Maintain forecast as the results are inline and we prefer to retain our FY19 job replenishment target pending finalisation of the Pavilion contract.

Maintain SELL, TP: RM0.50. Maintain SELL rating with unchanged SOP-driven TP of RM0.50. Our TP is derived from 50% discount on SOP value of RM1.00. Our TP implies P/E of 10.6x for FY19, 8.5x for FY20 and 7.2x for FY21. Despite the healthy orderbook level, the persistent weakness of property market caused by oversupply issue is major headwinds for its de-gearing initiatives.

Source: Hong Leong Investment Bank Research - 28 Aug 2019