Yesterday, WCT announced the following; (i) letter of acceptance of RM840.0m LRT3 job, and (ii) proposed jointinvestment with Chinese parties to develop TRX. While we are neutral on the contract award as it is within our FY17E replenishment target of RM2.0b, we are positive on the proposed joint-investment with Chinese parties as it would lighten its balance sheet. Maintain MARKETPERFORM with an unchanged SoP-driven Target Price of RM1.83.

Second LRT3 job.This RM840.0m cojob. Thisor the LRT3 project involves the construction works for guideway, stations, park and ride, ancillary buildings and other associated works from Bandar Utama to Johan Setia with a construction timeline of 33months from the day of award.

Neutral on the win… This marks WCT’s second win for the year as well as the second contract award from the highly anticipated LRT3 project. However, the contract award has neutral impact on eaa neutral earningsithin our order-book replenish as ent assumption of RM2.0b for FY17. Nonetheless, assuming conservative pre-tax margins of 8%, this particular depot work is expected to contribute c.RM18.3m to its bottom-line per annum.

JVs Chinese on TRX. Separately, WCT also announced a proposed joint investment with CORE (Singapore) TRX Investment Pte. Ltd. (CORE SPV) and China Communications Construction Company (M) Sdn Bhd to undertake the development in Tun Razak Exchange (TRX), which is currently wholly owned by WCT. Based on its proposal, WCT will raise RM200.0m worth of funds from the proposed joint-investment from the Chinese parties, which will be used to pare down WCT’s gearing. We are positive on the proposed joint-investment as WCT’s 2Q17 net gearing will lighten from 0.86x to 0.79x from the funds raised.

Outlook. Its outstanding order book stands at c.RM5.4b after the above contract award, providing earnings visibility for the next 2.5-3.0 years. Remaining order-book replenishment assumptions have been reduced to RM1.0b. As for its property division, its unbilled sales stands at RM487.0m with 1.5 years visibility and management intend to continue with their re-pricing strategy to clear its existing inventories amounting to GDV of RM644.0m.

Maintain MARKET PERFORM with an unchanged SoP-driven Target Price of RM1.83, in view of its steady earnings performance coupled with a lighter balance sheet and improving prospects of the company. Share price has also retreated by 22% from the peak. Our TP implies FY18E PER of 18.5x in line with the big boys range of 18.0-20.0x, which we are comfortable with especially for concession owners.

Source: Kenanga Research - 30 Aug 2017