1H16 core net profit (CNP) of RM53.8m was broadly inline, bogged down by higher-than-expected operating cost from its construction division. However, we deem that it is still on track to meet our full-year estimates are we are banking on a stronger 2H16. No dividends declared as expected. No changes to FY16-17E earnings. Maintain MARKET PERFORM with an unchanged Target Price of RM1.58, which implies FY17E FD PER of 13.9x

A weak first half. 1H16 CNP of RM53.8m came in broadly inline, accounting for only 39% and 38% of our and streets’ estimates, respectively. We believe the shortfall was driven by higher-thanexpected operating cost from its construction division. No dividend was declared as expected.

Results highlights. Its 1H16 CNP saw a significant improvement of 154%, YoY on the back of higher revenue, which improved by 38%, YoY backed by the steady progress of its on-going construction jobs secured last year. Its construction revenue was up by 50% whereas its investment division only saw marginal improvements in revenue of 8%. QoQ, 2Q16 CNP decreased by 32% despite revenue growth of 20%, due to higher operating cost from its construction division which margin (ex-forex losses) was down by 3ppt to 4%.

Forecast. In terms of estimates, we are keeping our FY17-18E earnings at this juncture as we are looking ahead for a stronger 2H16 performance.

Outlook. Currently, WCT has an external outstanding order book of RM4.3b, with 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, and RAPID. However, we expect more job awards to flow in closer to 4Q16/1Q17. That said, we are also looking forward on its planned listing for its construction and property investment division in the medium term.

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 raising up to RM143.0m last year for working capital purposes.

Source: Kenanga Research - 24 Aug 2016