News  WCT with its JV partner, Al-Ali Projects Co (70:30) have secured a contract in Qatar worth QAR1.2b (RM1.2b). Scope of works includes construction of a commercial boulevard with multiple roads, utilities, LRT stations and underground car parks. The contract is expected to be completed in 2Q17.

Comments  Although this contract is not a major surprise as the group has mentioned about this project before, we are POSITIVE on the news as we had downplayed the chances the group securing the project.  With 70% stake in the JV, we reckon WCT’s portion in this contract at RM840m. This makes up 84% of our initial FY15 new contracts assumption of RM1.0b. Assuming PBT margin of 7%, this project would add roughly about RM22.0m (15% of FY15) to the group’s bottomline per annum until 2017.

Outlook  After securing this project, we believe WCT will now be focusing more on domestic projects such as Penang ITMP (RM20b), Petronas RAPID works (RM1.0b), TRX (RM200m), and KL118 (Warisan Merdeka) (RM2.0b). All in, the management guided that the group has submitted RM22.8b worth of tenders for local projects and with RM2.3b tenders under preparation.  Including this project, we estimate by now, the group has about RM4.0b worth of outstanding orderbook which will last the next three years.

Forecast  Revised upwards our FY15-16E earnings by 2.1%- 4.2% after raising our FY15 new jobs assumption to RM1.3b from RM1.0b as we did not impute this job in our earnings model.

Rating Upgrade to OUTPERFORM (from MARKET PERFORM)

Valuation  After depreciating by 8.6% from its YTD high (RM1.74), WCT has emerged as a value play as we believe that the negatives (earnings disappointments) have been over-priced in its share price. Note that our forecasts are already at the low side i.e.: (i) 8% EBIT construction margins (vs its 5-year historical average of 11%), (ii) FY15 property sales forecast of RM600m vs management target’s RM650m, and (iii) conservative FY15 new contracts assumption of RM1.3b vis-à-vis actual YTD wins of RM840m. Hence, downside risk is limited at this juncture, in our view.  We raised our SoP-based TP to RM1.75 from RM1.73 previously (with an unchanged 20% discount) solely on earnings adjustments. Our new TP implies fwd- PER of 13.2x FY15 EPS, in line with its 5-year historical average fwd-PER.

Risks to Our Call  Lower-than-expected new contracts flows  Lower-than-expected construction margins  Lower-than-expected property sales 

Source: Kenanga