Highlights

We attended WCT’s 1HFY13 briefing yesterday. Below are the salient points:

Construction… Construction activities remained robust in 2Q, driven by its huge outstanding order book of RM2.3bn which translates to 2.3x FY12’s construction revenue (see Figure #1).

Prospects… Besides still awaiting decision on key projects i.e. RM800m Universiti Malaysia Sabah teaching hospital and ~RM1bn Kwasa Damansara civil works, WCT has added a new prospect in securing commercial building projects in Putrajaya Parcel F, collectively worth ~RM1bn. As for its overseas venture, although the recently lost Oman highway project has been called for retender, it is only open for local players. On the bright side, WCT is in the final leg of a competitive tender for a Qatar road and bridge project worth RM1bn.

Property… Achieved only RM105m new property sales in 2Q, bringing 1HFY13 new property sales achieved to RM225m, 29% of FY13 sales target of RM775m. We are not overly concerned as it is due to timing of launches. Medini Signature Condo (GDV: RM400m), which was launched in July, has achieved sales of ~RM200m. The next major launch will be Laman Greenville, GDV of RM110, which is pending permit approval. Overall, WCT has an unbilled property sales of RM480m, translating to 1.0x FY12’s property revenue (see Figure #2).

Unplugging Vietnam… In 2Q, WCT expensed off ~RM7m arising from its property venture in Vietnam. WCT has decided to pull out from Vietnam and channel its focus and effort on the local property scene.

Delays in Gateway… Opening of Gateway@KLIA2 has been delayed again to 2QFY14 from 4QFY13 although the complex is scheduled for completion by end August. Due to the delays, WCT will be incurring financing charges and compensation for its tenants. Hence, WCT will be negotiating with MAHB for some compensation. As of August, 75% of the floor space has been rented out.

Foreign shareholding… Foreign shareholding has increased to 16.9% as of end July, from 13.4% in April.

Risks

Execution risk; Regulatory and political risk (both domestic and overseas); Rising raw material prices; Unexpected downturn in the construction and property sector; and Failure in securing new sizable construction contracts.

Forecasts

Unchanged.

Rating

HOLD

Major contract wins has been elusive for WCT and with the lack of rerating catalyst, we are maintaining our HOLD call on WCT.

Positives: (1) Major contract wins; (2) Growing property investment income; (3) Strategic land banking exercise; (4) Listing of property division.

Negatives: (1) Failure to secure new sizable projects; (2) Slower than expected take up rate for property launches.

Valuation

TP maintained at RM2.41 based on unchanged 14x average FY13-14 earnings.

Source: Hong Leong Investment Bank Research - 26 Aug 2013