WCT Holdings’ 9M19 results were below market and our expectations. Net profit fell 27% yoy to RM76m in 9M19 due to lower construction and property earnings. Net profit fell 41% qoq to RM13m in 3Q19, mainly due impairment of receivables. We expect 4Q19 core earnings to track 3Q19 on slow ramp up in construction and property development progress billings. We cut our core EPS by 13-14% in 2019-21E to reflect the slower progress billings and the 3Q19 impairment of receivables. We maintain our HOLD call with 12-month target price of RM0.96, based on a 50% discount to RNAV.

Within Our Expectations

Net profit of RM76m (-27% yoy) in 9M19 accounted for 71% of the market consensus full-year forecast of RM108m and 60% of our previous estimate of RM126m. Revenue was down 20% yoy to RM965m in 9M19 due to lower construction (-21% yoy) and property-development (-12% yoy) revenue. Slower construction progress billings and weak property sales contributed to the lower revenue. Property investment revenue was up 14% yoy due to higher occupancy for its Paradigm Johor Bahru Mall and AEON Bukit Tinggi Shopping Centre.

Lower Construction and Property Earnings

Operating profit fell 12% yoy to RM220m in 9M19 on lower earnings for all divisions: construction (-20% yoy), property development (-7% yoy) and property investment (-3% yoy). Land sale gains partly offset lower property development earnings, while higher shopping mall revenue and sale of an investment property in Klang shored up property investment earnings.

High Order Book to Sustain Operations

WCT’s remaining order book of about RM5.4bn should sustain its construction earnings over the next 3 years. WCT achieved higher property sales of RM155m in 9M19 compared to RM123m in 9M18 with the continued focus to sell its inventories.

Maintain HOLD Call

The issuance of RM617m nominal value of Perpetual Sukuk has reduced the group’s net gearing to 0.65x at end-3Q19 from 1.03x at end-2018. We expect a rebound in earnings in 2020E but forecast risks remain high due to the slow ramp up for the Klang Valley LRT Line 3 project. Maintain our HOLD call on WCT with TP of RM0.96, based on 50% discount to RNAV

Source: Affin Hwang Research - 22 Nov 2019