WCT’s 1HFY21 core loss of -RM24m was within our but below consensus expectations. Earnings performance should see a broad based recovery towards year end as restrictions continue to loosen. Within our coverage, WCT’s prospects are most levered to the reopening and its string of success in raising cash does provide comfort during this period. Maintain forecasts and BUY rating with unchanged TP of RM0.59. Trading at a depressed P/B multiple of 0.26x (-1.5SD), stock should rebound in tandem with improving prospects.

Within expectations. WCT reported 2QFY21 results with revenue of RM435.6m (+41% QoQ, +16% YoY) and core earnings of RM16.1m (vs. core loss of -RM39.6m in 1QFY21; +78% YoY). This brings 1HFY21 performance to core loss of -RM23.5m (1HFY20: -RM6.9m). We deem the results within our but below consensus expectations (we projected FY21 core earnings of RM11.2m; while consensus projected core earnings of RM52.0m).

EIs. In deriving 1HFY21 numbers, we have adjusted 1QFY21 for: (i) Revenue and net profit from land sale of RM135m and RM57m; and (ii) reversal of arbitration expense of RM48m. No EIs are assumed for 2QFY21.

Dividends. No dividend was declared for the quarter.

QoQ. Performance turned to core earnings of RM16.1m driven by stronger revenue (+41% QoQ) in both construction and property segments. We understand that midway through June (Phase 1) WCT only had 2 sites with negligible operations having secured approvals for most. Additionally, WCT did not recognise perpetual sukuk distribution in 2QFY21 further boosting its bottom-line (vs RM24m recognised in 1QFY21)

YoY. Core earnings rebounded by 78% off a low base with MCO1.0 dragging 2QFY20 performance. As mentioned above, WCT’s operations were not significantly affected by Phase 1 restrictions in June-21. The rebound was primarily driven by construction segment with revenue rebounding by 27%, we think due to more advance phases of construction for its projects as well as smaller disruptions this time around.

YTD. On a YTD basis, despite higher revenue of 4%, core loss widened from - RM6.9m in 1HFY20 to -RM23.5m in 1HFY21 due to: (i) lower other income (-87%) from lower cash balance, (ii) wider losses at JV and (iii) higher perpetual distribution.

Outlook. WCT’s earnings should see a broad based recovery towards year end as restrictions continue to loosen. Its strong construction order book of RM5.4bn could anchor earnings moving ahead having beaten our replenishment expectations coming in at RM1.1bn this year. The company’s string of success in raising cash via land sale and arbitration win does provide comfort during this difficult period (RM782m assuming RM251m is repaid to subcon). Within our coverage, WCT’s prospects are most levered to the reopening with its leisure and hospitality segments to rebound while property sales could be aided by ongoing HOC and low interest rates.

Forecast. Maintain forecasts pending further clarity from today’s briefing.

Maintain BUY, TP: RM0.59. Maintain BUY with unchanged TP of RM0.59 based on a 20% discount to SOP value of RM0.73. Our TP implies FY21/22/23 P/E of 69.9x/22.8x/10.5x. Trading at a depressed P/B multiple of 0.26x (-1.5SD), stock should rebound in tandem with improving prospects. Catalysts: speedy reopening, dissipating political noise and recovery in job flows. Downside risks include: Covid-19 setbacks, return of political uncertainty and larger than expected cash burn.

Source: Hong Leong Investment Bank Research - 27 Aug 2021