Yesterday, WCT announced that they have received a letter of intent for the award of construction works on a proposed commercial development in Tun Razak Exchange (TRX) for RM555.0m. Neutral on the potential win. No changes to FY18-19E earnings. Maintain OUTPERFORM with an unchanged Target Price of RM1.35.

News. Yesterday, WCT announced that they have received a letter of intent for the award of construction works on a proposed commercial development in Tun Razak Exchange (TRX) from Lendlease Projects (M) Sdn Bhd (Lendlease) for a total consideration of RM555.0m. The scope of works is as follows; (i) construction of 4 levels of shopping complex, (ii) 3 levels of car park, (iii) 1 level open landscape with retail space and 1 information centre (future development), and also works in (iv) future development plot.

First for the year. This would be the first contract bagged by WCT. We are neutral on the potential contract award from Lendlease as it is still a letter of intent, despite having a separate preliminary works agreement so that WCT could start work on the land while finalising the contract value. Nonetheless, even if it materialises as a contract award, it is still within our order-book replenishment assumption of RM2.0b with no impact to our estimates. We expect the construction of the commercial complex to take up to 4 years.

Earnings unchanged. No changes to our FY18-19E core earnings, as the potential contract win is part of our order-book replenishment assumption.

Outlook. Its outstanding order-book currently stands at c.RM5.7b after factoring in the contract providing earnings visibility for the next 2.5-3.0 years. As for its property division, its unbilled sales stands at RM177.0m with less than 1-year visibility and management intends to continue with their re-pricing strategy to clear existing inventories amounting to GDV of RM624.0m.

Maintain OUTPERFORM with an unchanged TP of RM1.35. 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 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 - 13 Jul 2018