News

Yesterday WCT announced that they have bagged a contract award amounting to RM322.6m from PRPC Utilities and Facilities Sdn. Bhd.

The scope of works for the RAPID package 14-0401 consists of phased demolition and restoration works, excavation and backfillings works, storm drainage works, piling works, roads & paving works, underground piping works, concrete works, structural works, electrical and instrumentation works and any other miscellaneous works and are expected to be completed in the next 28 months.

Comments

This contract would mark the fifth contract win by WCT since October, bringing its total orderbook replenishment for FY15 to c.RM2.9b, far exceeding our FY15 orderbook replenishment assumptions of RM1.3b by 123%.

However, we are still neutral on the contract award as it is still within our FY16E orderbook replenishment of RM2.5b.

Assuming a conservative PBT margin 8%, the contract is expected to contribute c.RM19.4m to our net earnings estimate for the next 2-2.5 years.

Outlook

This contract award further boosts WCT’s outstanding orderbook to c.RM4.6b (previously, c.RM4.3b), sufficient to sustain the group for another 2-3 years.

While its outstanding orderbook remains sizeable at c.RM4.6b, we are concerned on the execution of these contracts, as labor issues could potentially be a main drag to its construction margins.

Forecast

No change to our FY15-16E net profit as the recognition of the contract award are still within our FY16E assumptions of RM2.5b.

Rating

Maintain MARKET PERFORM

Valuation

No changes to our SoP-based TP of RM1.51 (@20% discount) and keeping our MARKET PERFORM call on WCT as our TP of RM1.51 implies Fwd. PER of 20.9x, which is rich compared to other big cap contractors.

Risks to Our Call

Lower-than-expected new contract flows.

Lower-than-expected construction margins.

Lower-than-expected property sales.

Source: Kenanga Research - 16 Dec 2015