Period

1Q15

Actual vs. Expectations

1Q15 core net profit of RM33.2m came in within expectations, making up 22.5% and 23.1%, of our and market estimates, respectively.

YTD, WCT secured RM868.0m new jobs, accounting for 67% of our FY15 new contracts forecast. We expect the balance of our new jobs assumption to be secured by the group in 2H15.

Dividends

None as expected.

Key Results Highlights

QoQ, 1Q15 revenue was up by 9% due to higher property sales recognition. Meanwhile, 1Q15 net profit jumped 96% thanks to major improvement in construction margins (+8ppts) coupled with higher property profits following higher sales recognition. The group’s EBIT construction margins returned to its normalized level of 11% in 1Q15 from an average of 5% in FY14. We believe this is due to the absence of cost overruns as well as more high margins jobs in the orderbook.

YoY, 1Q15 revenue and core net profit declined by 25% and 28%, respectively, dragged down by lower contribution from overseas operations in construction division.

Outlook

Despite the slowdown in property market, the group’s construction division is still firmly backed by its strong external orderbook of RM2.6b that will last the group for the next three years.

Going forward, WCT is looking to secure more domestic jobs such as Petronas RAPID works (RM1.0b), TRX (RM200m), KL118 (Warisan Merdeka) (RM2.0b) and WCE highway.

It was also reported by The Edge Weekly that WCT-Arabtec JV is one of the two shortlisted contractors for the RM2.0b KL118 tower project. If this is true (only 2 shortlisted), WCT’s likelihood of winning the job is higher as we understood the job is targeted by many big contractors. If WCT wins the job, it can easily beat our new jobs assumption of RM1.3b for this year.

Change to Forecasts

Unchanged.

Rating

Maintain OUTPERFORM

Valuation

We raised our SoP-based TP to RM1.95 from RM1.86 previously (with an unchanged 20% discount) after rolling over our valuation benchmark to FY16. Our new TP implies fwd-PER of 13.3x in line with its 5-year historical average fwd-PER.

Raise FY15E PER construction to 14.0x from 11.0x previously due to sector re-rating pursuant to 11MP.

Risks to Our Call

Lower-than-expected new contracts flows

Lower-than-expected construction margins

Lower-than-expected property sales

Source: Kenanga Research - 26 May 2015