FY19 CNP of RM125.3m (-52% YoY) accounted for 114%/136% of our/consensus full-year expectations. The better-than-expected results were boosted by land sales (which lifted property profit), while the construction division contributed less during the year. Our revised net profit forecasts now stand at RM88m (-33%) for FY20 and RM92m (new) for FY21. We have lowered our SoP-driven target price to RM0.75 (from RM0.815) but upgrade our call to MARKET PERFORM following its share price decline (-22% since mid-Dec 2019). Better-than-expected headline profit. FY19 CNP of RM125.3m (-52% YoY) beat expectations, representing 114%/136% of our/consensus full-year estimates. In terms of segmental breakdown, the property development segment posted operating profit (before unallocated expenses and finance costs) of RM57.2m (up from RM16.9m in FY18), which would have otherwise reported a loss if not boosted by gains from land sale amounting to RM91m. However, the engineering & construction (-28% to RM100.1m) and property investment & management (-13% to RM110.2m) divisions posted weaker contributions .

Results’ highlight. 4QFY19 CNP of RM38.4m was down 76% YoY, mainly attributable to: (i) construction division, which contributed operating profit (before unallocated expenses and finance costs) of merely RM2.0m (versus 4QFY18’s 16.7m), and (ii) higher effective tax rate of 41.2% in the last quarter. QoQ, CNP increased 55% despite construction operating profit coming below 3QFY19’s RM25.7m due to higher property development profit. Meanwhile, WCT has proposed a share dividend via distribution of treasury shares on the basis of 1 treasury share for every 100 ordinary shares held.

Outlook. Forward earnings will be underpinned by its outstanding order-book of >RM5b, which represents approximately 4x FY19 construction revenue. Still, overall prospects (to win new construction contracts and sell more properties) will remain challenging given the prevailing tough market conditions currently clouding the construction and property sectors.

Cutting earnings estimates. Post results, we adjust our FY20E CNP forecasts to RM88m (-33%) after tweaking our assumptions on progress billings, margins and effective tax rate, and introduce FY21E CNP of RM92m (new),.

Target Price is revised to RM0.75, down from RM0.815 previously based on SoP valuation (see table overleaf). This implies an underlying P/E multiple of 12x on FY20E earnings. Following the share price slide (down 22% since mid-Dec last year), we are upgrading our call from UNDERPERFORM to MARKET PERFORM.

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

Source: Kenanga Research - 27 Feb 2020