News

Yesterday, WCT announced another contract win worth RM282.5m from IJM Construction Sdn. Bhd. for the construction and completion of West Coast Expressway for Package Works for Section 3, 4, 5, 8 & 9 with a construction timeline of 36 months.

The work scope consists of preliminaries, site clearance and earthworks, geotechnical works, drainage works and box culverts, subbase, road base and pavement, traffic signs, road markings and road furniture, utilities and services, erosion control sediment plan, environmental protection and enhancement.

Comments

This contract marks the fourth contract win by WCT since October, bringing its total orderbook replenishment for FY15 to c.RM2.6b, far exceeding our FY15 orderbook replenishment assumptions of RM1.3b by 100%.

Nonetheless, we are neutral on the contract award as it is still within our FY16E orderbook replenishment of RM1.5b. However, we do note that WCT has already achieved 85% of our FY16E target and we are looking to revise our FY16E orderbook replenishments higher post its results.

Assuming a conservative PBT margin of 8% (or net margin of 6%), the contract will contribute c.RM5.7m to our net earnings estimate for the next 3 years.

Outlook

This contract award further boost WCT’s outstanding orderbook to c.RM4.3b (previously, c.RM4.0b), sufficient to sustain the group for another 2 - 3 years.

While we are positive that WCT are eyeing for more earthwork related projects in 2016, we believe that these recent job wins will keep WCT busy before the fresh bids for more construction jobs starts again in 2016.

Forecast

No changes to our FY15-16E net profits.

Rating

Maintain OUTPERFORM

Valuation

Maintaining our current SoP-based TP of RM1.81 (@20% discount). Our TP implies a Fwd. PER of 13.4x, 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 - 17 Nov 2015