Journey to Wealth

WCT - Property kicker

kiasutrader
Publish date: Thu, 16 Aug 2012, 09:49 AM
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-  Maintain BUY on WCT with an unchanged fair value of RM3.05/share on a 15% discount to its sum-of-parts value. WCT reported 1HFY12 earnings of RM79mil (+6% YoY) ' as higher property earnings offset a slowdown in contributions from its construction division.

-  While this represented 47% of consensus (vs. our forecast:  42%), we deem the 1H results to be in-line, as we expect a pick-up in construction billings from 2H onwards along with maiden contributions from the Paradigm Mall in Kelana Jaya.

-  Construction EBIT fell 19% YoY in 1HFY12 following a void left from some key Middle East jobs that were completed last year. But, sequential earnings momentum should pick up in the coming quarters as the impact of recentlysecured local jobs begin to filter through (e.g. KK Medical facility, PLUS highway widening). Construction margin normalised to 11.6% in 2QFY12 vs. 17.3% in 1QFY12 (1HFY12: 14.5%).

-  Property earnings jumped 78% YoY on the back of a 2.8ppt YoY rise in margin to 21.6%. For FY12F, WCT is targeting to achieve new sales of RM700mil (our forecast: RM632mil) from RM1bil worth of property launches. Apart from the 1Medini Residences in Iskandar Johor, new launches over next 12 months may include gated & guarded offerings at Bandar Parklands, Southern Klang and high-rise condominiums in Bukit Jelutong.    

-  Year-to-date, WCT has raked in ~RM1.1bil worth of new jobs (FY11: RM187mil), just a tad short of our FY12F forecast of RM1.2bil. Further out, WCT has been shortlisted for basement works for the KL International Financial District (KLIFD) and is also looking at more opportunities at Iskandar Johor as well as the ongoing Vale iron ore facility project. 

-  In the Middle East, WCT remains hopeful of some positive newsflow coming from two packages under the Oman Expressways worth ~RM1bil each.

-  Equally, WCT's recent move to raise RM1bil via a proposed bond issue may signal more opportunities in the pipeline. We believe this could be either private finance initiative (PFI) projects or landbanking deals. Just two days ago, WCT received shareholders' approval for the purchase of prime land in OUG (57 acres) from the Eng Lian group.

-  More importantly, the OUG landbank has an estimated GDV of RM4bil ' boosting the group's total GDV in the pipeline to RM11bil.  WCT remains one of our two top large-cap picks within the construction sector. Valuations are undemanding at FY12F-14F PEs of 10x-13x.     

Source: AmeSecurities
WCT (9679)
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