1H18 CNP of RM80.0m is within expectations, accounting for 54%/51% of our/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 RM1.35.

In line. 1H18 CNP of RM80.0m is within expectations, accounting for 54%/51% of our/consensus’ full-year estimates. No dividend declared, as expected.

Results highlight. 1H18 CNP of grew 7%, YoY. The improvement was attributable to several factors; (i) revenue growth of 41% backed by construction and property investment divisions, which registered revenue growth of 50% and 177%, respectively, (ii) improvement in construction operating margins by 3ppt to 11% as most of its on-going local projects picked up pace, and (iii) sharp improvements in property development margins to 25% (+12ppt) arising from the contribution of land sale. On QoQ basis, 2Q18 CNP was flattish (+1%) despite revenue growth of 24% due to higher effective tax rate of 37% vis-à-vis 31% in 1Q18.

Outlook. Its outstanding order-book currently stands at c.RM4.5b 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 unsold completed property stocks that stand at c.RM600.0m collectively through a re-pricing strategy. That aside, we also expect more land disposals in the near term as part of their de-gearing exercise.

Estimates maintained. Post results, no changes to our FY18-19E earnings.

Maintain OUTPERFORM. We reiterate OUTPERFORM on WCT but with an unchanged SoP-driven Target Price of RM1.35 as we continue to see improvement in the company’s prospects, 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 11.3x, right below the big boys’ range of 12.0-14.0x.

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

Source: Kenanga Research - 28 Aug 2018