WCT reported disappointing 1Q20 results, only breaking even at the bottom line. Excluding land sale gain of RM16m and other one-off gains, the group incurred a core loss of RM17m. Its operations were severely impacted by the government’s Movement Control Order (MCO) and we believe it could go into losses in 2Q20 before recovering in 2H20. We cut our core EPS by 18-47% in 2020-22E to reflect slow progress billings and lower profit margins. We maintain our HOLD call with a lower 12-month target price of RM0.54, based on a 40% discount to our reduced RNAV.

Below Expectations

WCT only managed to break even in 1Q20 vs. consensus 2020E of RM90.4m in profit and our previous estimate of RM98.8m. Our previous core net profit forecast of RM66.8m is unlikely to be achieved given the weak 1Q20 and potential core losses in 2Q20. The sharp fall in revenue and squeeze in profit margin led to the soft result. Revenue fell 29% yoy to RM363m as all divisions had lower revenue: construction (-36% yoy), property development (-13% yoy) and property investment (-7% yoy). Operations were disrupted by the MCO.

Boosted by Land Sale Gain

WCT sold a piece of land, generating revenue of RM25m and PAT of RM16m in 1Q20. The land sale offset the net loss of RM17m in 1Q20. Construction works stopped during the MCO except certain works on its LRT Line 3 project that would be hazardous if not completed. Sales galleries were closed and there were no new launches of property projects. Operations only resumed in May 2020. WCT focused on cutting costs including staff costs as revenue declined and managed to generate EBIT of RM24m in 1Q20.

High Order Book to Sustain Operations

WCT secured RM1.2bn in new contracts in 1Q20, mainly contributed by the Pavilion Damansara Heights Phase 2 project. This lifted its remaining order book to RM6bn, equivalent to 4.8x of 2019 construction revenue. WCT achieved property sales of RM120m in 1Q20 with the continued focus to clear its inventories. Unbilled sales of RM177m and unsold completed stock of RM742m will likely sustain its property development activity but the property market remains challenging due to weak buyer sentiment. We reduce our RNAV/share estimate to RM1.35 from RM1.50 previously to reflect a lower construction segment valuation. Applying the same 40% discount to RNAV, we cut our 12-month TP to RM0.54 from RM0.60. Maintain HOLD

Source: Affin Hwang Research - 29 Jun 2020