We attended WCT’s investor briefing last Friday held in pursuant to its 2Q13 results and left with a neutral view over the Group’s overall prospect. Hence, we are maintaining our MARKET PERFORM recommendation on WCT but with a revised lower Target Price of RM2.50 (from RM2.61 previously). WCT’s outstanding external orderbook currently stands at RM2.3b which will last until 2015. We conservatively cut our orderbook replenishment assumption to RM600m from RM1.0b previously as we expect its contract-flow to slow down until end of the year. However, the stock will be re-rated if: (i) WCT achieves a higherthan–expected orderbook replenishment, likely from Qatar road and bridge projects, Putrajaya Building (Parcel F), and Sabah Hospitals, (ii) higher-than-expected property sales, (iii) the Nad Al Sheba Racecourse arbitration outcome is in WCT’s favour; and iv) the cancelled RM1.0b Oman Highway is revived and awarded to WCT.

2Q13 results review. Management further explained that the construction division’s higher EBIT margin was due to some cash settlement from the recent arbitration award (i.e. Dukhan highway). Meanwhile, the property development division’s lower EBIT margin of 12% in 2Q13 (from 25% in 2Q12) was mainly due a RM7.0m write-down of its Vietnam operation (i.e. WCT has decided not to pursue the Vietnam’s Platinum Plaza property project that it secured in January 2008 due to the country’s weak economic condition). If we were to exclude the one-off item, the property development EBIT margin will be higher at 17%.

Orderbook stood at RM2.3b. WCT’s outstanding orderbook currently stands at RM2.3b which could last until 2015. Year-to-date, WCT has only secured RM484m contracts locally.

Orderbook replenishment prospect. While domestic project is in a bit of a “lull” nowadays (i.e. no new contracts so far for WCT since April 2013), it is expected that WCT may secure RM1.0b worth of road and bridge projects in Qatar in the near term. Hence, we reckon that it will only achieve its 2013 orderbook replenishment target of RM1.5b if it were to secure these projects. Hence, conservatively, we cut our assumed orderbook replenishment for FY13 to RM600m from RM1.0b previously in view that WCT could only secure the Qatar project by early 2014. Other new contracts tendered are: Putrajaya Building (RM1.0b), Sabah Hospitals (RM800m), and Kwasa Damansara civil works (RM1.0b).

Reiterate RM775m new property sales. For 1H13, WCT has chalked up RM225m property sales, short by RM550m of its RM775m targeted sales. Nevertheless, we expect WCT to achieve its sales target driven by its Medini Signature’s Iskandar project. In total, WCT is launching property projects worth RM877m of GDV this year with half of the value coming from the Medini Signature project.

Earnings forecasts revision. While we revised our FY13E numbers higher by +9.4% after we adjusting its construction margin higher, we revised our FY14-FY15 earnings forecasts lower by 1%-3% following reduced FY13 orderbook assumption.

Maintain MARKET PERFORM. We are maintaining our MARKET PERFORM recommendation with revised Target Price (TP) of RM2.50 (from RM2.61). Revised TP was after: (i) a cut in our 2013 orderbook replenishment assumption to RM600m from RM1.0b; and (ii) revision in construction division’s PER14 to 15x from 16x previously reflecting WCT’s slow orderbook replenishment. However, the stock will be re-rated if: (i) WCT achieves a higher-than–expected orderbook replenishment, likely from Qatar road and bridge projects, Putrajaya Building (Parcel F), and Sabah Hospitals, (ii) higher-than-expected property sales, (iii) the Nad Al Sheba Racecourse arbitration outcome is in WCT’s favour; and iv) the cancelled RM1.0b Oman Highway is revived and awarded to WCT.

Source: Kenanga