Last Friday, WCT announced that its joint-venture with TSRCAP (51:49) had won a contract award from Merdeka 118, amounting to RM676.8m. Neutral on the win. No changes to FY18-19E earnings. Maintain OUTPERFORM with an unchanged Target Price of RM1.10.

News. Its joint-venture with TSRCAP (51:49) had won a contract award from Merdeka Ventures Sdn Bhd or Merdeka 118, amounting to RM676.8m for the construction of a shopping complex near PNB118 tower. The scope of works includes the construction and completion of an 8-level shopping complex podium, including the architectural works for the basement, retail area, residential drop-off and core, tower link bridge and external works. The construction works would commence from 2nd January 2019, and is expected to complete within 30 months.

A Christmas present. This would be the third contract bagged by WCT bringing its total effective replenishment for the year to c.RM2.7b. While its replenishment for the year has exceeded our assumption of RM2.0b for 2018, we are still neutral on the win as it adds to our replenishment assumption of RM1.5b for 2019, at 47%. Should they are able to maintain the momentum in securing private projects with such high contract values; we might look to review our replenishment assumptions for 2019. Assuming pre-tax margin of 7% and based on its effective stake of 51%, the project is expected to contribute c.RM7.0m to its bottom-line per annum.

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

Outlook. Its outstanding order-book currently stands at c.RM7.3b after factoring in the contract providing earnings visibility for the next 2.5-3.0 years. As for its property division, clearance of its inventories of RM865.0m remains a top priority for its management team, and we believe that it would be a re-rating catalyst for the company should they are able to clear more than 50% of the inventories.

Maintain OUTPERFORM with no changes to our SoP-driven Target Price to RM1.10. We maintain our OUTPERFORM view for its improving order-book trajectory in challenging times, and we laud management for their iron will in performing a herculean task turning the company around especially for its property division. Our current TP implies FY19E PER of 10.5x, below with its 3-year -1.5SD levels closer to its through levels.

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 Dec 2018