WCT’s FY20 core loss of -RM31.7m was below our and consensus expectations due to poor margins. WCT’s estimated outstanding orderbook stands at c.RM5.0bn translating into a healthy 4.0x cover. Management’s warning of possible impairments materialised this quarter amounting to RM172.5m. Maintain forecasts pending briefing. Downgrade to HOLD due to limited upside. Our TP of RM0.64 is unchanged based on 20% SOP discount.

Below expectations. WCT reported 4Q20 results with revenue of RM547.2m (+29% QoQ, +19% YoY) and core loss of -RM27.5m (vs. core earnings of RM2.7m and RM21.2m in 3QFY20 and 4Q19, respectively). This brought FY20 core loss to - RM31.7m (against core earnings of RM79.1m in FY19). The results fell below both our and consensus expectations (we projected FY20 core earnings of RM10.0m; while consensus projected core earnings of RM19.6m).

EIs. Our core earnings is largely adjusted for RM172.5m impairment loss during the quarter in relation to its investment properties, land and property inventory.

Deviations. The results shortfall was largely due to weaker-than-expected profitability margins for all segments.

Dividends. No dividend was declared for the quarter.

QoQ/YoY. 4Q20 turned core loss of -RM27.5m (from core earnings of RM2.7m in 3Q20 and RM21.2m in 4Q19) mainly due to pandemic resurgence resulting in the imposition of CMCO in 4Q20. QoQ and YoY drags can be broadly seen across all segments. Recall that 4Q20 saw stop work order at WCT’s Pavilion Damansara site due to escalating cases leading to poor margins.

YTD. FY20 finished with core loss of -RM31.7m turning south from core earnings of RM79.1m in FY19. This was in tandem with revenue decline of -3% as lower contribution from property (-20%) and property investment (-15%) more than offset the mild increase in construction revenue (+1%).

Orderbook. WCT’s estimated outstanding orderbook stands at c.RM5.0bn translating into a healthy c.4.0x cover (based on FY20 construction revenue). The company’s orderbook was replenished earlier this year with a RM1.2bn job for the construction of Pavillion DH Parcel 2. Job wins going forward will be dependent on successful roll out of government’s DE allocation under Budget-21. As of late last year, list of tenders submitted and pending submission was slightly above RM10bn with c.RM4bn coming from building works which we think mitigates the impact of political uncertainty.

Land sale to settle claims. In 2021, WCT has so far entered into SPAs for land sales amounting to c.RM135m where we believe will go towards paying arbitration claims for its MOI project in Qatar (RM127m) which will be settled progressively over 18 months (provided for).

Forecast. Maintain forecasts pending briefing from management today.

Downgrade to HOLD, TP: RM0.64. Downgrade to HOLD with unchanged TP of RM0.64 as upside has diminished due to the recent share price rally. TP is derived based on a 20% discount to SOP value of RM0.81. Our TP implies FY21/22 P/E of 14.5x/13.0x. While WCT is poised to recover gradually along with declining cases, we reckon this is largely priced-in trading at P/BV of 0.30x.

Source: Hong Leong Investment Bank Research - 24 Mar 2021