WCT-CCCC JV (60:40) announced its Sapangar port expansion contract win worth RM899.8m in Sabah. Job win beats our RM1bn replenishment assumption for FY21. Execution should be manageable with an experienced JV partner in port construction. Further job flows from this development is unlikely until 12MP is finalised. WCT’s latest orderbook now stands at RM5.7bn (4.5x cover based on FY20 revenue). Other jobs remaining job opportunities are PBH Sabah and KK airport. Increase FY22-23 earnings forecasts by 2-6% after revising job win target to RM1.5bn for FY21. Maintain HOLD with higher TP of RM0.56 based on 20% SOP discount. While WCT’s order book has generally held up well (RM5.0-6.0bn range) despite weak sector job flows, we remain cautious on downside risk to earnings expectations, weak balance sheet and fluid politics.

NEWSBREAK

Third job of the year. WCT through its JV, WCT-CCCC (60%:40%) has executed an LOA with Sabah Economic Development and Investment Authority (SEDIA) to undertake expansion works for the Sapangar Bay Container Port with a contract sum of RM899.8m. Work is expected to commence in Sep-21 and ending in Feb-25. For the project, the JV will undertake scope of works including site investigation & clearance, dredging and reclamation, seawall construction, container yard, building works, external works and M&E services.

HLIB’S VIEW

Better than expected. With this contract, WCT’s replenishment for the year increases by RM540m (based on 60% effective interest) bringing its job win tally to RM1.1bn which is better than our expectations of RM1.0bn for FY21. We have assumed EBIT margins of 7%, in-line with management’s general guidance of 5-8% for construction jobs. Recall that WCT had in Sept-20 secured a RM92m jetty extensions works at the nearby Sapangar Bay Oil Terminal which we believe would have been an advantage in tenders. Job execution should be manageable for WCT since its JV partner is vastly experienced in port construction. We believe funding would come from RM1.0bn federal allocation from 11MP (approved last year). Hence, we reckon more contract flows from this development would depend on timing of 12MP roll out.

Orderbook. With the latest win, WCT’s outstanding orderbook swells to RM5.7bn (+10%) translating into 4.5x cover based on FY20 construction revenue. Looking ahead, remaining job wins would be supported by its RM10bn worth of tenders submitted/pending submission (RM4bn from building works). On the infra side, near term opportunities centres largely in Sabah, PBH Sabah and KK airport in particular.

Forecast. Increase FY22-23 earnings forecasts by 1.8%/5.5% after increasing our replenishment assumptions for FY21 from RM1.0bn to RM1.5bn.

Maintain HOLD, TP: RM0.56. Maintain HOLD with higher TP of RM0.56 (from RM0.55) post-earnings forecasts adjustment. TP is derived based on a 20% discount to SOP value of RM0.70. Our TP implies FY21/22/23 P/E of 66.4x/21.7x/10.0x. While WCT’s order book has generally held up well (RM5.0-6.0bn range) despite weak sector job flows, we remain cautious on downside risk to earnings expectations, weak balance sheet and fluid politics.

Source: Hong Leong Investment Bank Research - 9 Jul 2021