• WCT’s 3Q20 results were below expectations. Net profit contracted 88% yoy to RM9.2m, while core earnings fell 82% yoy to RM10.1m in 9M20.

• Property sales and construction progress billings picked up following the easing of the government’s Movement Control Order (MCO). We cut our core EPS by 42-46% in 2020-22E to reflect profit share payments to Perpetual Sukuk holders.

• There could be some disruptions to its operations with the Conditional MCO imposed in 4Q20. Maintain HOLD call with 12-month TP of RM0.41, based on 70% discount to RNAV.

Below expectations

Core net profit of RM10.1m in 9M20 was only 33-34% of the consensus and our fullyear forecasts of RM30.1-30.9m. There was a strong rebound in core earnings in 2Q20 following the lifting of the MCO and the resumption of construction and property development/investment activities. But core earnings contracted 61% qoq to RM2.7m in 3Q20, mainly due to recognition of profit sharing payment sto its Perpetual Sukuk holders of RM24.4m (accrued for 6 months). We cut our core EPS by 42-46% in 2020-22E to reflect the RM12.2m per quarter charged to the P&L.

Weaker earnings yoy in 9M20

Revenue fell 13% yoy to RM1.16bn in 9M20 on lower construction (-18% yoy) and property investment (-15% yoy) revenue, partly offset by higher property development revenue (+15% yoy). Operating profit fell by a sharper 25% yoy to RM166m in 9M20 due to lower construction (-58% yoy) and property investment (-16% yoy) earnings, partly offset by higher property development earnings (+25% yoy). Higher sales of property inventories and land boosted its property development earnings, but disruptions caused by the MCO adversely impacted the progress billings for its construction division and footfall at its malls.

Focus on inventory sales

WCT continues to focus on the disposal of its property inventories and the outstanding balance has fallen by 15% YTD to RM696m as at 8 November, generating sales of RM279m. It has bookings valued at RM147m pending the signing of Sales and Purchase Agreements (SPA). We reaffirm our HOLD call with a TP of RM0.41, based on a 70% discount to RNAV as prospects remain challenging. Key upside/downside risks are higher/lower property sales and new contract wins.

Source: Affin Hwang Research - 27 Nov 2020