WCT’s FY16 CNP of RM84.8m was below expectations as it only accounts for 82%/71% of our/streets’ full-year estimates, respectively. No dividend declared vs. our full- year expectations of 2.5 sen. Slashed FY17E CNP by 23% to RM146.9m and rolled out our FY18E CNP of RM165.2m. Maintain UNDERPERFORM with an unchanged SoP- driven Target Price of RM1.58 which implies FY17E FD PER of 18.0x.

Below expectations. FY16 CNP of RM84.8m after stripping out its unrealised forex gains (RM12.9m), and added back fair value adjustment loss on its joint-ventures (RM29.4m). Note that we did not include the finance cost on receivables (RM15.2m) in our CNP calculations as we believe it to be a recurring practise. Its FY16 performance was disappointing as it only makes up 82%/71% of our/streets’ full-year estimates. The disappointment is mainly due to lower-than-expected construction and property margins. No dividend declared as compared to our expectations of 2.5 sen for FY16.

Results highlight. FY16 CNP saw an impressive growth of 72% driven by the improvements in revenue (+16%), and reduction in interest cost (-20%). The growth in revenue was mainly driven by its construction division, which saw its construction revenue improving by 23%. QoQ wise, its CNP was down by 46% despite 9% growth in revenue as it was bogged down by: (i) higher interest cost (+77%), and (ii) higher minority interest contribution of RM5.4m vis-à-vis a gain of RM0.9m back in 3Q16.

Downgrades FY17E earnings. Post results, we downgrade our FY17E CNP by 23% to RM146.9m after we adjusted our property earnings lower given that we had been over-bullish on our margin assumptions previously. That said, we also roll out our FY18E CNP of RM165.2m.

Outlook. Currently, WCT has an external outstanding order-book of c.RM4.9b, which provides earnings visibility for the next 2.5-3.0 years. Job prospects currently are underpinned by contracts from LRT3, Kwasa Damansara and TRX, which are likely to flow in from FY17.

Maintain UNDERPERFORM. No changes to our UNDERPERFORM call, with an unchanged SoP-driven TP of RM1.58. There are no changes to our TP despite the downgrade in earnings as our property division are valued on RNAV basis. Currently, it is traded at fairly rich levels of 21.8x FY17E FD PER which is higher compared to the other big boys that are trading at an average of 16.2x. Hence, we continue to maintain our UNDERPERFORM call on the stock.

Source: Kenanga Research - 24 Feb 2017