Post results briefing, we are comforted by management’s optimism towards construction replenishment targets and clear recovery plans for their property division. That said, all these hinges strongly upon the pace of recovery from the current Covid-19 wave and ability to keep a lid on future outbreaks. Upgrade earnings by 73%/37% after imputing for higher property sales and increase TP to RM0.475 (from RM0.47). Maintain OP. Key takeaways as below:-

Management setting the bar high with RM1b-2b new construction wins in FY21 backed by tenderbook of RM10b. Amongst others, tenderbook comprise projects from Pan Borneo Sabah, ECRL, Central Spine Road. For now, we choose to remain conservative and maintain our RM750m replenishment target earmarked for FY21E.

Abnormally high 3Q20 construction EBIT margins of 12% boosted by scope omission for certain low margin works. Expect subsequent quarters to revert back to normalcy at 6-9% EBIT margin run-rate.

LRT3 re-negotiations with MRCB-GK to conclude within the next 2 months. Expect reduction quantum of c.40% whereby initial contract quantum of RM1.4b would be reduced to RM0.8-0.9b. As of 3Q20, LRT3 constitutes RM587m of outstanding orderbook in which management has already accounted for the anticipated reduction.

3QFY20 property sales of RM93m lifted YTD sales to RM242m –  exceeding our RM200m target. The stronger-than-expected sales came from its new launch at Maple (Tower A), OUG which had good take ups of 70% upon launch. Consequently, we raise our FY20 sales target higher to RM350m.

FY21 has a strong launch pipeline worth c.RM1.5b from (i) Maple, Tower B, OUG, (ii) Hilltop 2 Mont Kiara (RM660m), (iii) W City Condo, Johor (RM510m) and (iv) Adenia Apartment, Klang (RM68m). Management is eyeing FY21 sales target of RM0.8b to RM1.0b which we find slightly optimistic given the current crisis. Nonetheless, we still raise our FY21E sales to RM600m (from RM400m) given the numerous launches planned.

Note that our new sales targets for FY20 and FY21 encapsulates  RM100m worth of potential land sales (from Klang) to be concluded either in 4QFY20 or 1QFY21 as guided by management. We have assumed RM50m of these land sales will be concluded this financial year while another RM50m to be in the next.

Retail malls still reeling from the pandemic with management’s focus to retain tenants. While tenants’ occupancy still healthy at c.95%, these are supported by various rental rebates and marketing efforts.

Hotels suffering. WCT’s two hotels - New World Hotel and Premiere hotel continue raking in losses as current occupancy rates are at low single digits (vs pre-covid levels of c.50%). 3QFY20 recorded JV losses of RM9m – mostly attributed from New World Hotel. We believe for as long as borders remain closed, such loss quantum is likely to persist.

Upgrade FY20E/21E earnings by 73%/37% as we increase FY20/21 sales to RM350m/RM600m (from RM200m/RM400m). We note that our new sales targets include RM50m of land disposal each year with PAT margins of 35% - which explains the huge jump in our revision.

Keep Tactical Outperform on marginally higher TP of RM0.475 (from RM0.47) based on FY21E PBV of 0.2x (-2SD).

Source: Kenanga Research - 27 Nov 2020