WCT Holdings reported 9M18 results that was within expectations. Net profit grew 14% yoy to RM108m in 9M18 with all divisions posting positive growth. However, core net profit contracted 10% yoy to RM105m in 9M18 due to lower construction and property earnings in 3Q18. Its high order book of RM6bn will sustain construction earnings growth. However, its high net gearing of 0.99x remains a concern. We reiterate our HOLD call with a TP of RM0.92, based on a 50% discount to our estimated RNAV.

Within Expectations

Net profit of RM108m (+52% yoy) in 9M18 comprised 76% of consensus full-year forecast of RM143m and 69% of our estimate of RM157m. We maintain our earnings forecasts on expectations that progress billings on its RM6bn order book will accelerate and lift 4Q18 results. Revenue increased 20% yoy to RM1.6bn, driven by the construction (+33% yoy) and property investment (+166% yoy) segments. But property development revenue declined 35% yoy on weaker sales of unsold properties in 9M18, which was partially offset by revenue from land sales in Serendah and Klang. The contribution from its new Paradigm Johor Bahru Mall lifted property investment revenue in 9M18.

All Divisions Reported Better Operating Profits

Operating profit jumped 43% yoy to RM246m as all divisions posted better earnings: construction (+21% yoy), property development (+14% yoy) and property investment (+193% yoy). There were no new property launches as WCT remained focused on disposing its unsold properties. Inventories increased 18% to RM545m in 9M18 from end-2017 as more unsold units were completed. Net gearing increased to 0.99x as at 30 June 2018 because its de-gearing efforts were hampered by delays for its proposed listing of WCT REIT and the private placement of new shares.

Earnings Maintained

We maintain our EPS forecasts and expect a slightly better 4Q18 result, driven by higher progress billings for its construction division, stable property investment income and further sale of inventories. There is potential land sale worth RM54.7m pending completion that will lift 4Q18 earnings.

Maintain HOLD

We maintain our HOLD call and TP of RM0.92, based on a 50% discount to RNAV. The current 2019E PER of 8x is undemanding but earnings forecast risk remains due to its weak property earnings.

Key risks

Key upside risk is a strong property sales rebound. Key downside risk is further delays in its debt restructuring efforts leading to possible debt rating downgrade.

Source: Affin Hwang Research - 27 Nov 2018