WCT’s 1QFY21 core loss of -RM28m was below our and consensus expectations due to weakness in all segments. WCT’s estimated outstanding orderbook stands at c.RM5.2bn translating into a healthy 4.2x cover. Its unsuccessful proposal to delay lease payments highlights operational difficulties. Cut earnings by 8-29%. Maintain HOLD with lower TP of RM0.53.

Below expectations. WCT reported 1QFY21 results with revenue of RM309.3m (- 43% QoQ, -9% YoY) and core loss of -RM28.1m (vs. core loss of -RM27.5m and - RM16.0m in 4QFY20 and 1QFY20, respectively). The results fell below both our and consensus expectations (we projected FY21 core earnings of RM52.2m; while consensus projected core earnings of RM54.5m).

EIs. We have adjusted for: 1) Revenue and net profit from land sale of RM135m and RM57m; and 2) reversal of arbitration expense of RM48m. We have assumed taxation rate of 24%.

Deviations. The results shortfall was due to lower contribution from all segments.

Dividends. No dividend was declared for the quarter.

QoQ/YoY. For 1QFY21, core loss widened to -RM28.1m (vs. core loss of -RM27.5m and -RM16.0m in 4QFY20 and 1QFY20, respectively) resulting from weaker contributions from property development and property investment segments. Weakness in both segments was topline driven resulting from business disruptions in the current quarter. While construction revenue was lower YoY and QoQ, EBIT was higher on the back of stronger margins (QoQ: +3.4 ppts; YoY: 0.9 ppts). We note that 1QFY20 saw 2 weeks of no work while 4QFY20 coincided with cluster at WCT’s project sites and could have brought upon additional costs incurred.

Orderbook. WCT’s estimated outstanding orderbook stands at c.RM5.2bn translating into a healthy c.4.2x cover). The company’s was able to replenish orderbook earlier this year with a RM440m airport expansion job in Kelantan. New job prospects going forward will be dependent on successful roll out of government’s DE allocation under Budget-21. We note that work opportunities have not picked up significantly due to the pandemic. As of 4QFY20, 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 fluidity.

Developments. WCT recently applied to MAHB for a reduction on its committed lease payments for car park and hangerage at the Subang airport worth RM86m. In return, WCT would transfer it’s 10% stake in Segi Astana (klia2) to MAHB at no cost and would enter into a put option agreement whereby MAHB could sell the 10% stake back to WCT on the 5th anniversary at a current consideration of RM56m (escalated at 6.9% p.a.). In addition, WCT’s lease payment for 2021 will be made through quarterly instalments. Nonetheless, MAHB has on 19 May rejected the proposal, we note post-WCT’s Subang airport proposition. Overall, the unsuccessful arrangement points toward increasing business difficulties.

Forecast. Cut FY21-22 earnings by -29.0% and -8.5%. Introduce FY23 earnings of RM51m.

Maintain HOLD, TP: RM0.53. Maintain HOLD with lower TP of RM0.53 (from RM0.61) post-earnings adjustments. TP is derived based on a 20% discount to SOP value of RM0.66. Our TP implies FY21/22 P/E of 20.2x/14.8x. WCT’s business recovery will take time given its exposure to retail & travel exacerbated by high

Source: Hong Leong Investment Bank Research - 28 May 2021