Period  4Q12/12M12

Actual vs. Expectations FY12 results came in below our expectations and that of the consensus due to slower construction activities and a drop in its construction margin from 11% to 7%. The core net profit of RM160m made up 90% of our forecast and the consensus. WCT recorded two exceptional items in the year, i.e. (i) a gain on the revaluation of assets of RM218m and (2) a forex loss of RM13m.

Dividends   Declared a single interim dividend of 3.25 sen for the quarter, bringing the total dividend for FY12 to 7.5 sen (net DPS). This is slightly below our expectation of 7.7 sen (net DPS).

Key Result Highlights QoQ, the core net profit of RM32m was significantly lower by 41%. This was due to the in its construction margin as well as in property development. Its property investment margin fell from 43% to 15% due to the additional expenses incurred for the festive season. We expect the higher cost will continue to impact the coming next 1Q13 earnings.

 YoY, the revenue was down by 22% while the core net profit was up by 32%. The strong earnings were mainly supported by the property development segment as its margin tripled from last year's 5%.

 Accumulative YoY, the 12M12 core net profit was marginally higher by 3% on the back of a flat revenue growth. Construction segment was the main drag for the slower earnings growth as the construction operating margin drop from 11% to 7%. This was due to the slower revenue recognition on its overseas projects i.e. Qatar and a higher operating cost. However, we expect the earnings will start to kick in by this year. Its property development continued to record a stable margin at 20%.

Outlook  We expect the property contribution to cushion the uncertainties in the construction sector at this juncture. Its order book now stands at RM3.2b for the next 2 years.

Forecasts  We have cut our FY13 earnings by 20% as we factored in a higher operating cost and a lower contribution from its construction division.

Rating   Maintain OUTPERFORM

 We are maintaining our OUTPERFORM rating on WCT as we expect the stock to be one of the best construction picks post the election event.

Valuation  We are lowering our TP to RM2.52 from RM3.17 previously (based on a SOP valuation) due to our earnings downgrade.

Risks  Delays in order book replenishment for FY13.

Source: Kenanga