FY21 core net loss (CNL) of RM23.8m came below expectations mainly due to the higher-than-expected tax rates distorted by a one-off arbitration gain of RM282m during the quarter. Meanwhile, the 0.5 sen dividend declared is above estimate. Despite faced with a challenging contract replenishment landscape, the recent slide in share price has brought current PBV valuations to 0.23x - close to its trough levels of 0.17x. With limited downside and a number of potential catalysts in the pipeline, we tactically upgrade WCT to OP with unchanged TP of RM0.62.

Results missed due to distortedly high tax rates. 4QFY21 core net loss (CNL) of RM23.8m dragged FY21 further into the red to RM27.9m. This is below our/consensus full-year profit expectation of RM34m/RM14m due to the higher-than-expected tax rate registered in 4QFY21 arising from an arbitration gain (of RM282m) which we consider a one-off and is hence stripped from our core bottom-line calculation. Nonetheless, the 0.5 sen final dividend declared came above as we did not anticipate any dividends.

Highlights. QoQ, 4QFY21 CNL of RM23.8m narrowed from a CNL of RM35.2m due to the absence of the RM24m bi-annual perpetual sukuk payment made every 1Q and 3Q. YoY, despite marginally higher revenue (+3%), FY21 CNL of RM27.9m widened by 53% due to the distortedly high tax rates (+21ppt) as explained above. Looking above the tax line for better comparison, we take comfort that EBIT actually improved 55% mainly on improved margins from its engineering and construction division (+9ppt).

For FY21A, WCT achieved contract replenishments of RM1.12b – in line with our target replenishment of RM1.2b but below management’s optimistic RM2b target. For FY22, we are targeting replenishment of RM1.0b (down 11% YoY) from government related tenders. We continue to foresee a challenging replenishment prospect while margins would continue to remain under pressure. As of Dec 2021, outstanding order-book stood at c.RM5.2b.

4QFY21 property sales of RM139m lift FY21 sales to RM525m – within our target of RM550m. For FY22, we are targeting flattish sales of RM550m. We foresee WCT launching RM0.9b worth of properties which were deferred from FY21 i.e. (i) Hilltop 2, Mont Kiara (GDV: RM680m), and (ii) W City, Johor (RM280m). Unbilled sales stood at c.RM282m (1-year cover).

Land-sale wise, the group still has lands located in: (i) Klang (79 acres), (ii) Medini, Johor (39 acres), and (iii) Inanam, Kota Kinabalu (22 acres) available for sale. By our estimates, these lands could fetch a cumulative value of c.RM550m-RM700m.

Keep FY22E earnings of RM88m unchanged and introduce FY23E earnings of RM70m. Note that there is a land sale gain (from Sungai Buaya, Ulu Selangor) worth RM45.5m captured in our FY22E earnings of RM88m.

Tactically upgrade to OP (from MP) on unchanged TP of RM0.62 (FY22E PBV of 0.3x) given the slide in share price. Despite the subdued prospects, current PBV valuations of 0.23x are close to the group’s trough levels of 0.17x (in March 2020) – which limits the downside. Catalysts in the horizon could come from: (i) monetization of their profitable malls through a potential REIT listing, and (ii) further land sales which would continue to improve their net gearing position.

Source: Kenanga Research - 25 Feb 2022