9M17 CNP of RM115.1m is in line at 77%/78% of our and streets’ full-year estimates. No dividends declared as expected. No changes to FY17-18E earnings. Upgrade to OUTPERFORM with an unchanged SoP-driven Target Price of RM1.83.

Within expectations. 9M17 CNP of RM115.1m (after stripping off forex loss of RM19.8m) is in line, making up 77%/78% our/streets’ full-year estimates. No dividend declared as expected.

Results highlight. WCT managed to grow its 9M17 CNP by 56%, YoY despite the 10% decline in revenue. This is mainly driven by the improvement in operating margins for its construction and property investment divisions to 11% (+8ppt) and 49% (+4ppt), YoY, respectively. The significant improvements in construction margins were due to higher contribution from local projects arising from better executions. Its 3Q17 CNP grew 6%, QoQ underpinned by its revenue growth of 23%, which is backed by all of its divisions that registered growth of 9% to 30%.

Outlook. Its outstanding order-book currently stands at c.RM6.0b providing earnings visibility for the next 2.5-3.0 years. As for its property division, unbilled sales stands at RM487.0m with 1.5 years visibility and management intend to continue with their re-pricing strategy to clear existing inventories. That aside, we also expect land sales in the near term as part of their de-gearing exercise.

Earnings unchanged. Post results, there are no changes to our FY17- 18E earnings.

Upgrade to OUTPERFORM. We upgrade our call to OUTPERFORM (previously, MARKET PERFORM) with an unchanged SoP-driven Target Price of RM1.83, premised on improved outlook in the construction space, as they are one of the very few contractors who had bagged multiple awards from LRT3. Our TP implies FY18E FD PER of 18.0x, in line with the big boys’ range of 18.0-20.0x which we are comfortable with especially for concession owners.

Risks to our call include: (i) lower-than-expected margins/order-book replenishment, and (ii) lower government spending on infrastructure projects.

Source: Kenanga Research - 23 Nov 2017