Period  2Q14/1H14

Actual vs. Expectations  The 1H14 core net profit of RM83.1m came in below expectations, making up only 38% and 43% of our fullyear forecast and market estimates, respectively. The negative variance was mainly due to lower-thanexpected revenue, particularly in construction division. We have overestimated its construction revenue recognition previously.

Dividends  As expected, a first interim DPS of 3.53 sen was declared which up about 47% of our expected 7.5 sen cumulative DPS in FY14.

Key Results Highlights QoQ, 2Q14 revenue and core net profit declined by 14% and 20%, respectively, dragged down by the construction segment. Construction division’s revenue which makes up 64% of topline declined by 8% due to slower billings from both Malaysia and Middle East projects. Also, the division’s EBIT margin shrunk to 8% from 10% in 1Q14. Nonetheless, the property division’s EBIT rose slightly by 5% thanks to stronger margins.

 YoY, 2Q14 net profit declined by 21% mainly due to weaker construction division’s margin as compared to that of 2Q13 despite strong property division’s performance.

 YTD, overall, both 2H14 revenue and net profit declined by 11% and 7%, respectively, dragged down by slower construction billings and weaker construction margins.

Outlook  YTD, WCT has secured new contracts worth RM342m, boosting its outstanding orderbook to RM1.88b.

Nonetheless, we reiterate our main concern that WCT may not meet our expectation of RM1.5b new contracts by end-FY14.

 On a positive note, WCT is eyeing a few key projects in Malaysia (i.e. WCE (main contract has already been awarded), other RAPID infrastructure works, Kwasa Damansara Land civil works, TRX civil works packages, and some projects in the Gulf States, i.e. Qatar infra works. All in, WCT’s outstanding tenderbook stands at RM6.1b.

Change to Forecasts Despite the earnings miss, we are leaving our forecast unchanged for now (but with downward bias) pending an analysts’ briefing today.

Rating Maintain MARKET PERFORM

 Despite the group’s strong orderbook, we maintain our MARKET PERFORM rating for now due to its lack of near-term catalysts.

Valuation  Maintain our SoP-based TP at RM2.32, implying 13.5x

fwd-PER (in-line with mid-cap construction peers of 13-15x).

Risks to Our Call Lower-than-expected orderbook replenishment

 Slower-than-expected construction progress

 Higher-than-expected input costs.

Source: Kenanga