WCT’s FY17 net profit was above market and our expectations. We were surprised by the net exceptional gain of RM4m, mainly due to investment property fair value gains offset by impairment of receivables. Core net profit surged 78% yoy to RM151m, driven by higher construction and property earnings. We cut our EPS forecasts by 4-6% for FY18-19 to reflect higher interest expenses due to the increase in borrowings. We reiterate our BUY call with a reduced 12-month TP of RM2.36, based on a 20% discount to RNAV.

Within Expectations

Net profit of RM155m (+126% yoy) was above the consensus forecast of RM147m and our estimate of RM130m. We were surprised by the RM214m fair value gain for Paradigm Mall JB, which started operation in November 2017, and other investment properties. This was partly offset by the RM165m impairment of receivables, which related to the completed Ministry of Interior project in Qatar, and unrealized forex loss of RM20m. The core net profit of RM151m (+78% yoy) for FY17 was within our expectation.

Better Operating Performance

Revenue was down 1% yoy to RM1.9bn as higher property development (+44% yoy) and investment (+25% yoy) revenue offset lower construction revenue (-11% yoy). Operating profit jumped 72% yoy to RM313m. The higher property investment profit (+937% yoy) was partially offset by the lower property development profit (-8% yoy) and RM33m loss for the construction division. The property investment division recognised a fair value gain of RM225m with normalised profit of RM46m. Excluding the oneoff impairment of receivables amounting to RM165m and unrealised forex loss of RM20m, construction profit was RM152m in FY17, double that in FY16.

New Contract Target Achieved

WCT secured RM2bn of new contracts in FY17, achieving its target. The order book expanded to RM5.6bn at end-FY17 from RM5.0bn at end-FY16. Property sales of RM305m in FY17 were higher than RM281m in FY16. Unrecognised sales stood at RM147m with unsold completed stock still high at RM550m. WCT is targeting to secure RM2bn of new contracts in FY18, having already submitted tenders worth over RM2.8bn.

Maintain BUY

We revise up our RNAV/share forecast to RM2.95 from RM2.74, mainly to reflect the higher book value for its investment properties following the revaluation. Applying a higher discount of 20% to RNAV (10% previously) to reflect a higher execution risk for its restructuring, we cut our TP to RM2.36 from RM2.46.

Source: Affin Hwang Research - 28 Feb 2018