We attended WCT Analysts’ Briefing last week, and the major highlights during the briefing are: (i) managements’ target to secure another RM2.0b of orderbook replenishment, (ii) property sales target of RM600m, and (iii) listing timeline of its construction arm and REIT. However, we came back feeling NEUTRAL as we still believe that WCT needs to strive harder in delivering their earnings, especially for its construction arm. Hence, we maintain MARKET PERFORM with an unchanged SoP-based Target Price of RM1.51.

Targets RM2.0b worth of job. Currently, WCT has an outstanding orderbook of RM4.8b, which will provide them another 2- 3 years earnings visibility. Nonetheless, this is not stopping management from targeting for more jobs in 2016 with a replenishment target of RM2.0b. Judging from the projects they intend to participate like Kwasa Damansara, Pan Borneo, TRX, RAPID, highways and others, the collective tenderbook size up to RM2.0b-RM3.0b. We believe that WCT stands a good chance in meeting their target given that we are expecting a slew of projects to be announced closer to the end of 1H16. However, their replenishment target is still within our assumptions of RM2.5b.

Sales target of RM600m. Despite weak property sentiment and outlook, management is maintaining an optimistic view, banking on a recovery in 2H16. Hence, management has set a higher sales target of RM600m, which is 60% higher compared to its FY15 actual sales of RM373m. While management did not disclose the total value of its planned launches for the year, we believe they would be leveraging on its upcoming development in OUG, i.e. Paradigm Garden City, where they will be launching RM450m GDV worth of condominium in 1Q16 and followed by Phase 2 of the project with an estimated GDV of RM950m in 4Q16. While we maintain our cautious outlook on the property market, we believe that WCT’s sales target is realisable should they price their products competitively.

A year of IPOs. Apart from orderbook and sales targets, management is excited over its planned IPOs for its construction arm and also REIT-ing of its two investment properties, i.e. BBT Shopping Mall and Paradigm Mall as part of its de-gearing plans. While market could be expecting the listing of its construction arm to be comparable to SUNCON’s market capitalisation of RM1.6b, we deem that such valuation could be steep. At an estimated market capitalisation of RM1.5b, our estimates would imply a FY16E PER of 29x. However, we view this positively as management will strive hard to improve the profitability of its construction arm prior to the listing in 4Q16.

Maintain Market Perform. Post-briefing, we are still maintaining our SoP-based TP of RM1.51 (20% discount), as we made no changes to our earnings estimates. While we acknowledge that WCT has a healthy and sizeable outstanding orderbook of RM4.8b, we opine the group need to focus on deliverables, as the listing of its construction arm in 4Q16 could be highly anticipated by the market should they are able to beat our and streets’ expectations in 1H16. Furthermore, our TP implies a Fwd. FDFY16EPER of 26.4x, which is rich compared to other big cap contractors.

Source: Kenanga Research - 29 Feb 2016