News  WCT announced yesterday that it has secured a contract from Boustead Ikano Sdn Bhd via a Letter of

Acceptance (LOA) to build a retail shopping centre with two levels basement car parks, four levels of retail, food & beverage and entertainment and four levels of elevated car parks (IKANO building) in Cochrane, Kuala Lumpur.

 The contract value is RM651.6m and the project is expected to be completed in 2H16.

Comments  Although the news was not entirely a surprise, we are positive on this contract as we were previously slightly pessimistic on WCT securing fresh jobs. This new win marked WCT meeting its guidance on securing RM1.0b of new projects in Malaysia.

 Assuming PBT margin of 6%, we estimate the project will contribute about RM14.7m (FD EPS: 1.04 sen) per annum to the group’s net profit for the next two years, equivalent to 7.5% of our FY15 net profit.

 YTD, WCT has secured close to RM1.0b new contracts this year, exceeding our FY14 new jobs assumption of RM700m.

 In total, we estimate WCT has a running orderbook of RM2.8b, by now, providing WCT earnings visibility for the next three years.

Outlook  We are now rather comfortable on WCT’s rate of orderbook replenishment i.e. RM1.0b this year vis-àvis RM484m in FY13.

 We also estimate, by now the group’s tenderbook is about RM3.6b driven by some major projects namely Kwasa Damansara earthworks (RM1.0b) and infrastructure jobs in Qatar (RM1.0b).

 Nonetheless, above all, WCT is still facing challenging times due to: (i) disappointment in property sales, (ii) declining trend in construction margins, and (iii) intense competition in the construction industry.

Forecast  We tweaked 3-4% higher our FY14 and FY15 forecasts to RM163.1m and RM196.5m, respectively, to reflect the group’s better-than-expected orderbook replenishment (from RM700m to RM1.0b for FY14). Conservatively, we maintain our FY15 new contract assumption of RM1.0b.

Rating Maintain MARKET PERFORM

 While we are wary on WCT’s earnings outlook, we would consider upgrading our call should the group surprise us with significant new contract flows in the near-medium-term given its strong tender book of about RM3.6b.

Valuation  Revised higher our SoP-based Target Price of RM2.27, from RM2.21 previously, due to upward revision in earnings. Our TP implies Fwd-PER of 16.3x FY15 earnings which is in line with its 3-year Fwd-PER mean.

Risks to Our Call

 Significantly higher-than-expected new contracts flows

 Higher-than-expected construction margins

 Higher-than-expected property sales.

Source: Kenanga