WCT’s management remained cautious on prospects during the recent analyst briefing. Net profit of RM89m (-17% yoy) in 2019 was within market expectation but below ours. WCT saw lower construction and property investment earnings. Similarly, net profit fell 6% qoq to RM12m in 4Q19, mainly due to lower construction earnings and write-down in value of property inventories and development land. We cut our core EPS by 14- 19% in 2020-21E to reflect the slow progress billings and weak property sales. We maintain our HOLD call with a lower 12-month target price of RM0.71, based on a 50% discount to reduced RNAV.

Below Expectations

Net profit of RM88.8m (-16% yoy) in 2019 was close to market consensus forecast of RM92m but 12% below our estimate of RM101m. Revenue was down 22% yoy due to lower construction (-33% yoy) revenue as some projects were at the tail-end. This was partially offset by higher property development (+36% yoy) and property investment (+4% yoy) revenue. Higher sale of undeveloped lands (RM73m in 2019), stronger property sales and higher occupancy rate of its Paradigm Johor Bahru Mall and EON Bukit Tinggi Shopping Centre contributed to the higher revenue.

Lower Construction and Property Investment Earnings

Operating profit fell 4% yoy to RM308.7m in 2019 on lower earnings for its construction (-27% yoy) and property investment (-19% yoy) divisions, partly offset by higher property development (+125% yoy) earnings. The property investment profit fell due to fair value gain and the absence of government facilitation funds of RM20.9m for the infrastructure costs incurred for Paradigm Mall, Johor Bahru.

High Order Book to Sustain Operations

WCT’s remaining order book of about RM5bn should sustain its construction earnings over the next 3 years. But it only secured RM119m new contracts in 2019 vs RM2.67bn in 2018. WCT achieved higher property sales of RM322m in 2019 (vs. RM146m in 2018) with the continued focus to sell its inventories.

Maintain Our HOLD Call

We expect 2020E earnings to rebound with RM80m land sale secured but lower core EPS by 14%. Maintain HOLD. We reduce our RNAV/share estimate to RM1.42 from RM1.92 previously to reflect lower construction segment valuation and higher net debt. Based on the same 50% discount to RNAV, we cut our 12-month TP to RM0.71 from RM0.96.

Source: Affin Hwang Research - 5 Mar 2020