Yesterday, WCT announced that they have received a letter of award of construction works for Pavilion Damansara Heights worth RM1.8b. Neutral as there are no changes to FY18-19E earnings. Maintain OUTPERFORM with an unchanged Target Price of RM1.35.

News. Yesterday, WCT accepted a letter of award from Impian Ekspresi Sdn Bhd (IESB) for the construction and completion of 9 blocks of office tower and 3 blocks of service apartment on a podium block comprising retail space, mezzanine floors and works to lower ground floor and basement car park (for Pavilion Damansara Heights) for a contract sum of approximately RM1.8b over 38 months.

The second for the year. This would be the second contract bagged by WCT, and we are positive with the contract award which would bring its year-to-date replenishment up to RM2.3b exceeding our target of RM2.0b by 16%. To recap, the first contract secured by WCT is the construction of a commercial complex, with an indicative value of RM555.0m based on a letter of intent from Lendlease. Currently, they are still waiting for a letter of award for that particular project as the project costs have yet to be finalised. Assuming pre-tax margin of 10%, the project would contribute c.RM42.0m per annum to its bottom-line.

Earnings unchanged. While its year-to-date replenishment might have exceeded our target of RM2.0b, we are keeping our FY18-19E earnings unchanged, as we have factored in minimal billing contributions from its first contract award in FY18 as the project costs have yet to be finalised and spill over to our FY19E replenishment target of RM1.5b.

Outlook. This latest contract win boosts its outstanding order-book to c.RM7.1b (previously, RM5.3b) providing earnings visibility for the next 2.5-3.0 years. As for its property division, its unbilled sales stands at RM161.0m with less than 1-year visibility and the management team intends to continue with its re-pricing strategy to clear existing inventories amounting to GDV of RM603.0m.

Maintain OUTPERFORM with an unchanged TP of RM1.35. We reiterate our OUTPERFORM call on the stock backed by improving outlook as mentioned above coupled with management’s relentless effort to de-gear. 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 - 19 Sep 2018