News

Yesterday WCT announced that they have won RM754.8m worth of infrastructure works for the Tun Razak Exchange (TRX) project from 1MDB Real Estate Sdn. Bhd. The infrastructure works include earthworks, underground road structures, installation of direct buried utilities are expected to take up to 23 months from its commencement date of 21-Oct-15.

At the same time, WCT also announced that they would be buying a parcel of land measuring 1.65 acres from KLIFD Sdn Bhd for a total consideration of RM223.0m or RM3,097psf.

Comments

We were not entirely surprised with this contract win as WCT had been competitively bidding for this particular project. However, WCT has secured RM1.74b worth of construction orderbook to-date exceeding our initial assumptions of RM1.30b by 34%.

Assuming a conservative pre-tax margin of 8%, this project will contribute c.RM22.6m to its bottom line per annum.

As for its land deal, we believe that it is still fair at RM223.0m for 1.65 acres with a 10.8x plot ratio as it makes up 20% of its estimated GDV of RM1.1b. In terms of pricing at RM3,097 psf, it is still cheaper compared to MRCB’s German embassy and Affin’s TRX land deals transacted at RM3,188 psf and RM4,683 psf, respectively.

We also do not expect any huge capital outlays for the land purchase as the payment of the land will be offset with the payment from its infra works contract over three tranches until the completion of infra works. Hence, the land deal is only expected to be completed by the end of 2017.

Outlook

WCT’s outstanding orderbook remains robust at c.RM3.4b (previously, c.RM2.6b) which is sufficient to sustain the group for two years.

That said, WCT is still looking to secure more domestic jobs such as from Petronas RAPID works (RM1.0b), KL118 (Warisan Merdeka) (RM2.0b) and also WCE highway (RM600m).

Forecast

We are keeping our FY15-16E net profit forecasts, despite its orderbook replenishment exceeding our FY15 assumptions of RM1.3b by 34%, as the excess to be felt in FY16E which is still within our replenishment assumptions of RM1.5b.

Rating

Maintain OUTPERFORM

Valuation

Maintaining our current SoP-based TP of RM1.81 (@20% discount), as we have yet to factor in the land deal into its RNAV as we believe that the land requires a longer gestation period as it will not be viable for development in near future. Our TP implies a Fwd. PER of 13.4x, which in line with its 5-year historical average Fwd. PER.

Risks to Our Call

Lower-than-expected new contract flows.

Lower-than-expected construction margins.

Lower-than-expected property sales.

Source: Kenanga Research - 20 Oct 2015