Core net profit of RM75.6m in 1H17, excluding unrealised forex losses, was within our expectation, representing a 42% yoy surge. We cut our FY17E EPS by 13% to reflect the unrealised forex loss of RM21m but leave our core net profit forecast essentially unchanged. Prospects are good for further replenishment of its order book of RM4.5bn. But its property development segment is facing challenges to clear its high inventories due to the lacklustre property market. Maintain BUY with a RM2.46 target price, based on a 10% discount to RNAV.

Core Net Profit Within Expectation

WCT reported a net profit of RM54.6m (+33% yoy) in 1H17 comprising 37%/36% of the consensus and our previous full-year forecasts of RM148.5m and RM151.8m respectively. We were surprised by the unrealised forex loss and net exceptional loss of RM21m. Core net profit of RM75.6m (+42% yoy) comprised 50% of our previous full-year forecast of RM152m. We expect 2H17 core earnings to match those in 1H17, supported by progress billings on its construction order book of RM4.5bn and unbilled property sales of about RM350bn.

Better Operating Performance

1H17 revenue declined 20% yoy, mainly due to lower construction revenue (-30% yoy) following the completion of the Ministry of Interior building project in Qatar. But construction EBIT jumped 58% yoy due to an improved EBIT margin of 8.5% in 1H17 compared to 2.9% in 1H16 due to higher contribution from local projects with better margins. Property development revenue jumped 34% yoy on higher progress billings and sale of inventories, while property investment revenue was down marginally by 1% yoy. But property development EBIT fell 27% yoy due to a plunge in the EBIT margin to 12.8% in 1H17 from 23.3% in 1H16, due to higher rebates and promotional activities to reduce its inventories of RM0.62bn as at end-June.

Good Prospects to Replenish Order Book

WCT is bidding for a few packages of the LRT Line 3 project. The award decision is expected in 3Q17. The total tender book stands in excess of RM10bn. Ytd, it has secured RM0.2bn of external projects. We remain optimistic that new contracts of RM1.5bn in FY17E will be secured.

Maintain BUY

We expect the potential corporate restructuring, asset monetization and degearing efforts to spur interest in WCT. We reaffirm our BUY call with a 12M TP of RM2.46. WCT is one of our top sector picks. Key risks to our positive view would be slower property sales and construction execution risks.

Source: Affin Hwang Research - 25 Aug 2017