Yesterday, WCT announced along with their JV-partner KKB (30:70) that they have bagged RM1.3b worth of works for the Pan Borneo highway. We are neutral on the contract award as it is part of our FY16 orderbook replenishment target of RM2.5b with no fresh impact to our FY17-18E earnings. Maintain MARKET PERFORM with an unchanged Target Price of RM1.58.

Second job for the year. This contract award of RM1.3b for the upgrading works for Pan-Borneo highway marks the second job wins for WCT. To recap, they bagged RM133.9m worth of jobs in March 2016 for the proposed re-development works of the existing police quarters in Taman Keramat, Selangor.

Pan-Borneo WPC-09. The Pan-Borneo work package valued at RM1.3b stretches from Sungai Arip Bridge to Bintulu Airport Junction with a construction period of 51 months commencing from the date of award. Based on WCT’s equity stake of 30%, and an assumed pretax margin of 8%, we expect the contract to contribute c.RM5.5m to its bottom-line per-annum, which have already been factored into our FY17-18E earnings.

Forecast. As mentioned, there are no changes to our FY17-18E earnings as it has already been factored into our order book replenishment target of RM2.5b for FY16. After this Pan-Borneo contract award, we are expecting WCT to be eyeing closely for the upcoming SUKE and DASH highway work packages, which we believe is worth approximately RM350.0m-RM400.0m per package.

Outlook. Currently, WCT has an external outstanding order book of RM4.1b, with an earnings visibility of 2-3 years. In terms of job prospects, managements are maintaining target replenishment target at RM2.0b underpinned by projects such as MRT2, LRT3, Kwasa Damansara, TRX, RAPID, SUKE and DASH highway. However, we expect more job awards to flow in closer to 4Q16. Maintain MARKET PERFORM. We continue to reiterate our

MARKET PERFORM call on WCT with an unchanged TP of RM1.58. Our main concern for WCT is still on the possibility of repeated cash calls to address its working capital purposes, particularly when they have debt covenants to meet. To recap, WCT undertook a rights issuance to raise up to RM143.0m last year for working capital purposes.

Source: Kenanga Research - 27 Jul 2016