WCT’s 9MFY19 earnings of RM58m (+13% YoY) were above ours but below consensus expectations. YTD core PATMI increased due to higher contribution from property development divisions. WCT’s estimated outstanding orderbook stands at c.RM5.3bn translating into a healthy 2.9x cover. We reckon the outstanding amount may expand by RM1bn once the letter of award for Phase 2 Pavillion Damansara Heights is received. Increase FY19-21 earnings by 6.0%, 4.6% and 6.7% to reflect stronger property segment margins. We prefer to retain our FY19 job replenishment target pending finalisation of the Pavilion contract. Maintain SELL rating with higher SOP-driven TP of RM0.80. Our TP is derived from 30% discount on SOP value of RM1.15. Despite the healthy orderbook level, the persistent weakness of property market caused by oversupply issue presents major headwinds for its de-gearing initiatives.

Above expectations. WCT reported 3QFY19 results with revenue of RM368.3m (- 18% QoQ, -5% YoY) and core earnings of RM24.8m (+9% QoQ, +370% YoY). This brings 9MFY19 core earnings to RM57.9m, increasing by 13% YoY. The core earnings accounted for 89% of our full year forecast (consensus: 54%) which is above ours but below consensus expectations.

QoQ. Core PATMI increase by 9% mainly due to lower taxes in the quarter as a result of over provision in prior year.

YoY/ YTD. Core PATMI increased 13% YTD and almost quadrupled YoY due to higher contribution from property development divisions. The high latter jump was a low base effect as low contribution from property development segment and high tax rate hampered results for 2Q-3QFY18.

Orderbook. WCT’s estimated outstanding orderbook stands at c.RM5.3bn translating into a healthy 2.9x cover. The outstanding amount may expand by RM1bn once the letter of award 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 is received. To recap, earlier WCT received a letter of intent for the project with award subjected to further negotiations and finalisation. Based on our checks, works for the project are already ongoing.

Forecast. Increase FY19-21 earnings by 6.0%, 4.6% and 6.7% to reflect stronger property segment margins. We prefer to retain our FY19 job replenishment target pending finalisation of the Pavilion contract sum.

Maintain SELL, TP: RM0.80. Maintain SELL rating with higher SOP-driven TP of RM0.80 (from RM0.70). Our TP is derived from 30% discount on SOP value of RM1.15. Our TP implies P/E of 16.5x for FY19, 13.1x for FY20 and 10.9x for FY21. Despite the healthy orderbook level, the persistent weakness of property market caused by oversupply issue presents major headwinds for its de-gearing initiatives.

Source: Hong Leong Investment Bank Research - 22 Nov 2019