WCT’s briefing yielded minimal surprises. Indications are that earnings would pick-up heading into year end. Outstanding orderbook stands at RM5.4bn (4.3x cover) having secured an impressive RM1.1bn of jobs YTD during a period where peers have struggled. Property sales are coming through despite restrictions and pulled forward demand going into HOC expiry could ensure a robust finish to the year. As for its property investments, we still expect its travel related assets to see a longer path to normalisation. Increase FY22-23 earnings by 10.9% and 5.5%. Maintain BUY with higher SOP-driven TP of RM0.61. Trading at a depressed P/B multiple of 0.26x (-1.5SD), stock should rebound in tandem with improving prospects.

Below Are the Key Takeaways From Last Week’s Briefing:

Construction. Indications are that work progress will pick up significantly by Oct-21 when workers are fully vaccinated and site capacity ramps up to 100%. WCT’s active sites are currently operating at 60%; we believe likely to be KV centric projects which constitute around 67% of orderbook considering relatively slower ex-KV inoculation. We understand that its Meydan arbitration win would recognise a gain starting 4Q this year, an estimated RM58m boost to 4QFY21 headline earnings (our initial expectation was in 3Q). WCT will progressively recognise a cumulative RM150m gain over the 3 year period and could carry a further gain of RM250m if subcon repayment is not required. Company’s outstanding order book now stands at RM5.4bn (cover ratio: 4.3x) having secured an impressive RM1.1bn of jobs YTD during a period where peers have struggled. Management’s RM2bn target is unchanged while we maintain our RM1.5bn assumption. Tenderbook of RM10bn remains largely unchanged, with a 60:40 split between infra and building jobs.

Property development. Unbilled sales stands at RM147m representing a 0.4x cover. WCT’s property sales are on track to meet our RM800m assumption chalking up RM362m in 1HFY21. By our estimates, 60% of sales are from its completed inventory (low margins) and could continue to be the case in FY21 as all launches initially primed for FY21 have been delayed. Despite the imposition of Phase 1 in June (FMCO), through its virtual platform the company managed to rake in RM60m of sales (our estimates) and should aid in meeting sales expectations in spite of restrictions. We expect robust sales for 4Q considering: (i) reopening optimism (ii) pulled forward demand from HOC expiry and (iii) low interest rates. The company’s land disposal gain of RM45m could be booked in 2QFY22 once full amount of proceeds are received.

Property investment. Occupancy rates across its property investment assets exhibited stability QoQ with Gateway registering 2% improvement to 81% on the back of improved interest. Management has signed up another 1% of NLA and negotiating another 14%. Our base case of a pickup in 2HFY21 (back-loaded) remains intact with vaccination rates driving looser restrictions. Nonetheless, we note that its travel related assets should see a longer path to recovery as international borders reopening would be a prerequisite.

Forecast. Increase FY22-23 earnings by 10.9% and 5.5% on assumptions of higher work productivity.

Maintain BUY, TP: RM0.61. Maintain BUY with higher TP of RM0.61 (from RM0.59) based on a 20% discount to SOP value of RM0.76. Our TP implies FY21/22/23 P/E of 72.3x/21.7x/10.9x. Trading at a depressed P/B multiple of 0.26x (-1.5SD), the 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, larger than expected cash burn and adverse move in material costs.

Source: Hong Leong Investment Bank Research - 30 Aug 2021