Yesterday, WCT announced that they have bagged a LRT3 package, i.e. the Johan Setia depot works amounting to RM185.9m. We are neutral on the contract award as it is within our FY17E replenishment target of RM2.0b. No changes to our FY17-18E earnings. Maintain UNDERPERFORM with a higher SoP-driven Target Price of RM1.80 (previously, RM1.58).

First LRT3 award. The LRT3 Johan Setia depot works (LRT3 Package TD1) is the first contract award encompassing the construction and completion of Johan Setia Depot (Phase 1) and associated works for construction and completion of LRT3 from Bandar Utama to Johan Setia of which the scope of works includes site investigation works, traffic and roads, safety, health and environmental management, site clearance, demolition and earthworks, sub-structure works, drainage works, roadworks, electrical and mechanical works over the next 18 months.

Neutral on the win? This marks WCT?s first win for the year and also the first contract award from the highly anticipated LRT3 project. However, we are neutral on the contract award as it is comfortably within our order-book replenishment assumption of RM2.0b for FY17. Nonetheless, assuming conservative pre-tax margins of 8%, this particular depot work is expected to contribute c.RM7.4m to its bottom-line per annum.

Outlook. This particular contract award brings its external outstanding order-book of c.RM5.0b to RM5.2b, providing earnings visibility for the next 2.5-3.0 years. While they have won the first of LRT3 works, we anticipate that they may bag more jobs from LRT3 on the viaduct packages in the medium-term. Other job prospects currently are underpinned by contracts from Kwasa Damansara and TRX, which are likely to flow in from FY17.

Maintain UNDERPERFORM. No changes to our UNDERPERFORM call, but upgraded our SoP-driven Target Price to RM1.80 (previously, RM1.58) after rolling forward our construction valuation base year to FY18E as we started rolling forward for the sector. We believe that WCT is still needed to strive hard to deliver its earnings and continue with its de-gearing exercise while restraining from undergoing more cash-calls after a recent placement exercise. That said, it is traded at fairly rich levels of 24.0x FY17E FD PER which is higher compared to the other big boys that are trading at an average of 20.2x. Hence, we continue to maintain our UNDERPERFORM call on the stock.

Source: Kenanga Research - 06 Apr 2017