There were minimal developments from the briefing apart from introduction of >RM1bn replenishment goal as well as RM1bn sales target for FY22. Construction earnings should gradually improve with 4QFY21 turning in a disappointing number due to ramp up gestation period. Orderbook stands at RM4.7bn (3.7x cover) having secured an impressive RM1.1bn of jobs in 2021. Launches of RM2.8bn are planned for next year but could face multiple headwinds. Tweak FY22 earnings higher by 2%. Maintain HOLD SOP-driven TP of RM0.55. Concerns remain over execution risks and potential balance sheet heavy endeavours. Catalysts: dissipating political noise and job flow recovery. Downside risks include: costs pressure, Covid-19 setbacks, return of political uncertainty and larger than expected cash burn.

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

Readjusting one-offs. In deriving FY21 numbers, we adjusted for: (i) revenue and net profit from land sale of RM135m & RM57m recognised in 1QFY21 and (ii) net gain from Meydan settlement of RM260m. Accounting for the above, WCT’s FY21 finished at core LATAMI of -RM219.7m, narrower core losses than our initially calculated core loss of -RM284.8m.

Construction. While work progress has gradually ramp up since Oct-21, construction revenue remains disappointing in 4QFY21. Management is attributing this to ramp up gestation period and billings should accelerate in future quarters. There is a possibility of RM94m write-back going forward coming from tax assumed from the Meydan settlement. WCT has a remainder of ~RM400m remaining to be paid from Meydan in 10 remaining quarterly instalments. 1QFY22 could continue to be bottom-line sluggish considering the perps distribution of c.RM24m. Outstanding order book stands at RM4.7bn (cover: 3.7x) having secured c.RM1.1bn of jobs in 2021. Tender book of RM9bn is largely unchanged (adjusted downward by wins); ~60:40 split between infra and building jobs.

Property development. Unbilled sales have increased to RM211m. FY21 sales came in roughly 10% higher than expected. Approximately 52% of sales have come from completed inventories which carries marked down profitability. Management is aiming to launch five different projects next year carrying a cumulative GDV of RM2.8bn. WCT is setting sales target of RM1.0bn for FY22 (vs. RM525m achieved in FY21). We deem this a demanding target considering HOC expiry, possible interest rate hikes and inflationary pressures could pose as headwinds this year. Separately, WCT could recognise around RM50m gain on land sale from its Sungai Buaya sale going forward.

Property investment. Occupancy rates are broadly stable QoQ across its property investment assets except for slight deterioration at Skypark. Nonetheless, rates should improve in-line with higher number of flights. Management is also working on optimising layout to increase NLA. The impending border reopening should be broadly positive for its retail and hospitality assets.

Forecast. Tweak FY22 earnings slightly higher by 2.0%.

Maintain HOLD, TP: RM0.55. Maintain HOLD with marginally higher TP of RM0.55 based on a 30% discount to SOP value of RM0.78. Our TP implies FY22/23 P/E of 15.1x/8.5x. While valuations are compelling, concerns remain over execution risks and potential balance sheet heavy endeavours, erasing its previous de-gearing progress. Catalysts: dissipating political noise and job flow recovery. Downside risks: costs pressure, Covid-19 setbacks, return of political uncertainty and larger than expected cash burn.

Source: Hong Leong Investment Bank Research - 28 Feb 2022