1Q18 CNP of RM39.8m is within expectations, accounting for 27%/25% of our and consensus’ full-year estimates. No dividend declared, as expected. No changes to FY18-19E earnings. Maintain OUTPERFORM with an unchanged SoP- driven Target Price of RM1.90.

In line. 1Q18 CNP of RM39.8m is within expectations, accounting for 27%/25% of our and consensus’ full-year estimates. No dividend declared, as expected.

Results highlight. 1Q18 CNP of grew 6%, YoY. The improvement was attributable to several factors; (i) revenue growth of 14% backed by construction and property investment divisions, which registered growth of 16% and 152%, respectively, and (ii) improvement in construction operating margins by 5ppt to 13% as most of its on-going local projects picked up pace. On QoQ basis, 1Q18 CNP saw a significant increase by 79% due to narrowed losses of joint-venture and associates.

Outlook. Its outstanding order-book currently stands at c.RM4.8b providing earnings visibility for the next 2.5-3.0 years and we expect its performance to see further improvement after the impairment on its Middle East project. As for its property division, we believe that management’s focus remains on clearing unbilled sales and unsold completed property stocks that stand at c.RM700.0m collectively through re-pricing strategy to clear the existing inventories. That aside, we also expect land disposals in the near future as part of their de- gearing exercise.

Estimates maintained. Post results, we are keeping our FY18-19E earnings, and we believe that WCT would be able to maintain its performance as demonstrated in 1Q18.

Maintain OUTPERFORM. We reiterate our OUTPERFORM call on WCT but with an unchanged SoP-driven Target Price of RM1.90 as we believe that the worst could be over after the impairment on its Middle East projects, and we laud the new management team for their continuous efforts in improving the company’s profitability i.e. (i) securing more local construction jobs, (ii) re-pricing strategy to clear property inventories, and (iii) de-gearing plans through land disposal in the near term. Our current TP implies FY18E PER of 18.3x, in line with the big boys’ range of 18.0-20.0x. However, we might look to review our call and Target Price post a result briefing which is scheduled to be held today as we get better clarity on the construction industry outlook from management.

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

Source: Kenanga Research - 24 May 2018