WCT?s 1Q17 CNP of RM37.4m came in within expectations, accounting for 25% of our and streets? full-year estimates, respectively. No dividends declared as expected. No changes to FY17-18E core earnings. Maintain UNDERPERFORM with a Target Price of RM1.83.

Within expectations. 1Q17 CNP of RM37.4m came in within expectations, accounting for 25% of our and streets? full-year estimates, respectively. No dividends declared as expect.

Results highlight. WCT?s 1Q17 CNP grew by 8%, YoY despite the marginal decline in revenue (-2%), thanks to the significant improvement in construction operating margins, which improved by 7ppt to 8% driven by the healthy progress of its local projects. Likewise, its property division registered weaker operating profits (-38%) on the back of lower development revenue (-19%) coupled with compression in margins (-5ppt) due to intensive marketing efforts to clear off its inventories. QoQ wise, 1Q17 CNP soared 241% mainly due to i) improvement in construction revenue (+3%) and construction operating margins (+2ppt) and ii) growth in property investment income (+19%) lifted by better operating margins of 52% (+10ppt). However, its net gearing inched up by 0.04x to 0.95x compared to 4Q16 due to working capital and land banking.

Earnings. Post 1Q17 results, we make no changes to our FY17- 18E earnings of RM146.9m and RM165.3m, respectively.

Outlook. Its outstanding order book stands at RM5.2b, providing earnings visibility for the next 2.5-3.0 years. We are anticipating 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 and our SoP-driven Target Price of RM1.83. We believe that WCT has to strive hard to deliver earnings and to 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 valuation of 24.4x 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.

Source: Kenanga Research - 30 May 2017