Period

4Q15/FY15

Actual vs. Expectations

FY15 core net profit of RM49.3m makes up 125%/46% of our/street’s full-year estimates. WCT's core earnings beat our expectation, driven by better-than-expected revenue as our construction billings estimate was too conservative. Likewise, it did not live up to street's expectations, which could be due to higher operating margin assumptions for both its construction and property division.

Dividends

Final interim dividend of 2.0 sen declared, bringing total dividend to 4.18 sen, above our overly conservative expectations of 1.8 sen.

Key Results Highlights

YoY, FY15 core net profit of RM49.3m after stripping off several exceptional items, i.e. forex (RM91.8m), fair value adjustment on Paradigm office tower (RM58.0m), and reversal of finance charges (RM20.0m) saw a steep decline by 59% to RM49.3m albeit a flattish revenue. The main drag was due to the compression in construction margins (ex-forex gain) that declined from 5.4% to 3.7%.

QoQ, 4Q15 core net profit of RM21.3m registered 2.1x growth driven by significant improvements in revenue that was up by 40% mainly driven by its construction division as its on-going projects picked up pace coupled with the improvements in associate contribution that also saw significant growth of 7.5x.

Outlook

WCT’s outstanding orderbook and unbilled sales remain healthy at c.RM4.8b and RM599.0m, respectively, providing the group earnings visibility for the next three years. We strongly believe that while WCT is still looking for more jobs, it should be focusing in executing on-going projects.

Change to Forecasts

Unchanged.

Rating

Maintain MARKET PERFORM

Valuation

Maintain SoP-based TP of RM1.51 (20% discount). While we acknowledge that WCT has a healthy and sizeable outstanding orderbook of RM4.8b, we opine the group need to focus on deliverables. Furthermore, our TP implies a Fwd. FD FY16E PER of 26.4x, which is rich compared to other big cap contractors.

Risks

Lower-than-expected new contracts flows

Lower-than-expected construction margins

Lower-than-expected property sales

Source: Kenanga Research - 26 Feb 2016