We are maintaining our OUTPERFORM recommendation on WCT with an unchanged TP of RM3.09 based on SOP valuation.  WCT is our Top Pick for the construction sector in 4Q12. This is banking on its potential contract to be secured from TRX and RAPID ('RAPID') earthworks, which would have a cumulative value c. RM2.0b. This is in line with the recent Budget 2013 announcement of the initiative to draw developers and investors to participate in developing these two projects. We see the implementation of these projects as imminent despite the risk of uncertainties in terms of the upcoming election outcome, which will overweigh on the construction sector in the near term. We, however, do not discount that the competition will be stiff as all  construction players are likely to be eyeing the projects as well. Nonetheless, WCT has ample capacity at c.RM2.0b at this juncture and this will be a key advantage to secure the contracts. 

Construction contract flows limited.  There is a huge risk of uncertainties in the construction sector at this juncture due to the 'moving goal' post of the next general election date. In addition, sector is likely to have a greater risk premium closer to the election date due to the potential change in the political scenario and the potential  delays in awarding contracts. As expected, there were no new contracts announced in the recent Budget 2013 announcement and. That said, we  believe that the contract awards likely to take place post-election  will be, in particular, Gemas-JB EDTP, WCE Highway, High-Speed Train and Langat 2. We note also that there were two main contracts mentioned in the Budget, i.e. TRX and Petronas RAPID. 

Ample capacity to execute RM2.0b contract.  To date, WCT's current order book stands at RM3.8b and these are projects that were in the 2011 bidding list. The management is still also actively looking to materialise the contracts on its current tender book (c. RM6b). Based on numerous reports, the cumulative value of TRX and RAPID's earthworks packages could reach up to more than RM2.0b. This is within WCT's current capacity, which is able to execute up to RM2.0b worth of earthwork projects at this time. We see the TRX contract as imminent among the two projects mentioned above as the tender had already been closed back four months ago. On RAPID, we understand that Petronas is satisfied with WCT's past track record in earthwork projects and hence based on merit, it stands a high change to secure the contract. 

New Middle East contracts to gain traction.  In addition to local contracts, WCT is also eyeing to secure more infrastructure-based projects i.e. highway projects in Middle East, particularly  in Oman and Qatar. To recap, in August 2012, WCT secured the RM1.0b Oman-Batinah Expressway (Package 2) project and the management is also looking at other Highway projects in Qatar and is also considering Package 1 of Oman-Batinah Expressway. We believe that these projects will be another key catalyst for WCT if they materialise as its local contract flows are slowing down.

Maintain OUTPERFORM with unchanged TP at RM3.09 based on SOP valuation. We are keeping our forecasts unchanged at this juncture as we are not changing our existing contract assumptions  for FY12E earnings. However, should there be any new contracts be secured in the remaining months of 2012, it will contribute to the bottom line starting from FY13 onwards.