• WCT reported a surprise net loss of RM200m in 4Q20 and RM191m in 2020, mainly due to impairments of its property assets and inventories. Core net loss was RM17m in 2020 compared to core net profit of RM25m in 2019.

• We cut 2021-22E core EPS by 3-14% to reflect higher net interest expenses as its net gearing has increased.

• Prospects remain challenging due to disruptions caused by the pandemic. We downgrade our call to SELL from Hold with higher target price (TP) of RM0.50, based on a narrower 60% discount to RNAV.

Third Year of Impairments

Core net loss of RM17m in 2020 was a surprise compared to consensus core net profit forecast of RM19m and our estimate of RM11m. The Movement Control Order (MCO) and weak sentiment caused by the pandemic in 2020 adversely impacted all its divisions. Impairment of its investment properties, hotels and inventories led to exceptional losses totalling RM174m. This increased the headline net loss to RM191m in 2020. This is the third consecutive year of massive impairments for WCT. 2020 was the third consecutive year of impairments made due to the weak property market conditions and hotel demand.

Construction Division Turned Around

Construction operating profit was RM42m in 2020 compared to RM18m loss in 2019. In 2019, there was a one-off provision for losses on a completed building project in Qatar, which did not recur. Property earnings fell 49% yoy while its property investment division incurred an operating loss of RM4m in 2020. High construction order book of about RM5bn will sustain its construction activities.

Take Profit

We expect WCT’s core operations to see a gradual recovery as progress billings accelerate for its construction and property development divisions, while occupancy for its hotels normalises. We trim our RNAV/share to RM1.25 from RM1.36 to reflect the higher net debt at end-2020. Based on a narrower 60% discount to RNAV (70% previously), we raise our TP to RM0.50 from RM0.41. Net gearing increased to 0.88x at end-2020 from 0.81x at end-2019 due to the negative FCF. Following the 33% jump in WCT’s share price over the past month, we recommend taking profits and downgrade our call to SELL from Hold. Key upside risks are higher-than-expected new contract wins and property sales.

Source: Affin Hwang Research - 17 Mar 2021