WCT and China Communications Construction Company (CCCC) in a 60:40 JV has secured a RM899.8m contract from the Malaysian government to undertake the expansion of Sapangar Bay Container Port in Sabah. We were positively surprised as we did not expect any public project roll-outs amidst the pandemic. Also, WCT’s YTD wins of RM1.12b have surpassed our RM1b target. Post win, we increase our FY21 order-book replenishment to RM1.2b and consequently increase FY22E earnings by 3% to RM84m. Keep OP with unchanged TP of RM0.64 pegged to 0.3x PBV.

Won RM900m contract to expand Sapangar Bay Container Port. WCT and CCCC in a 60:40 JV has secured a RM899.8m contract from Sabah Economic Development and Investment Authority (on behalf of the Government of Malaysia) to undertake the expansion of Sapangar Bay Container Port. The contract will span 42 months from Sept 2021 to Feb 2025.

Contract came as a positive surprise for two reasons. First, we had expected public project roll-outs to be held back amidst the height of this pandemic and secondly, WCT’s effective win of RM540m (60% stake) brings cumulative YTD replenishment to RM1.12b; surpassing our RM1.0b target (but still within management’s RM2b guidance).

Consequent to this contract, we increase our order-book replenishment target by 20% to RM1.2b. We still keep our replenishment below management’s RM2.0b guidance because we think the other sizeable tenders targeted by WCT such as the Pan Borneo Sabah and Sabah Sarawak Link Road are unlikely to be awarded this year as the government would likely conserve funds to prioritise pandemic assistance packages. Note that the funds for the Sapangar Bay Port expansion project had been allocated by the federal government since 2016 under the 11th Malaysian Plan.

Earnings outlook. In tandem with the higher FY21E replenishment target of RM1.2b, we increase FY22E earnings by 3% to RM84m. We had assumed an 8% EBIT margin for this newly won contract. Post win, outstanding order-book stood at RM5.7b (3.5x cover).

Maintain OP and TP of RM0.64 based on unchanged FY22E PBV of 0.3x (-1.5SD). At current PBV valuation of 0.23x, we find WCT’s valuations appealing in view of an earnings rebound post pandemic.

Source: Kenanga Research - 9 Jul 2021