We left WCT’s results briefing feeling reassured with its outlook backed by strong outstanding order-book of RM5.1b, and on-going de-gearing initiatives that are set to bring earnings to greater heights. No changes to FY18-19E earnings. Maintain OUTPERFORM with a lower SoP-driven Target Price of RM1.35 (previously, RM1.90) due to the derating arising from weak market sentiment.

Business as usual. Post briefing, we were reassured with WCT’s prospect in the construction amid uncertainty in the roll-out of mega infrastructure projects in the near-term due to the change in government on the following; (i) massive outstanding order-book of RM5.1b with 3-year’s visibility, (ii) focus shift to private sector jobs which looks promising i.e. building jobs, and (iii) on-going inventory clearance and land disposal exercise as part of their de-gearing plans.

Construction. Despite the uncertainty in the roll-out of infrastructure projects from the government and WCT yet to secure any replenishment, management remain hopeful to achieve their replenishment target of RM2.0b backed by tender book of c.RM5.0b specifically in building works. Management indicated that RM2.0b out of the RM5.0b tender books are from related parties, i.e. development projects from its major shareholder’s private and listed entities. While WCT has yet to secure any jobs to date; we believe WCT is steering in the right direction i.e. targeting building works in diversifying their jobs portfolio and could possibly achieve their/our replenishment targets of RM2.0b for the year.

Property. As for its property division, management have a sales target of RM300.0m, higher compared to our target of RM250.0m. Given the challenging back drop in the property scene, we are less hopeful with management’s target as its remaining inventories of RM624.0m are priced at a higher scale. However, the game changer would be its upcoming project launch in 3Q18, i.e. Sapphire Residences (GDV: RM229.0m) which is on a built-then-sell model, which we believe could see encouraging sales, priced lower to its previous development, i.e. Azure in the same vicinity.

De-gearing slowly but surely. WCT has long talked about its degearing exercise plans, i.e. (i) equity fund raising, (ii) monetisation of investment assets, (iii) clearance of inventories, and (iv) disposal of lands prior the change in major shareholder. Positively, we have seen these plans put into action as management have managed to clear RM305.0m worth of property inventories in 2017 since the change in major shareholder, and aspires to achieve the same target in 2018. That aside, management also successfully signed three conditional SPAs for the disposal of lands in 1Q18 for a total consideration of RM116.0m which are all expected to concluded in FY18. We opine that management’s de-gearing plans to be highly challenging under current market circumstances and we laud management’s strong will and relentless effort working towards these targets, especially on property inventory clearance.

Estimates maintained. Post briefing, we maintained our FY18-19E earnings, as we were assured that WCT is able to maintain its performance as demonstrated in 1Q18.

Maintain OUTPERFORM. We lowered our SoP-driven Target Price to RM1.35 (previously, RM1.90) due to the de-rating in valuation underpinned by weak market sentiment, especially the construction sector. However, we reiterate our OUTPERFORM call on the stock backed by promising outlook as mentioned above. Our current TP implies FY19E FD PER of 14.3x, below with its 5-year average of 18.7x.

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

Source: Kenanga Research - 25 May 2018