Strong 1QFY22 CNP of RM30.6m which accounted for 35%/43% of our/consensus estimate is deemed within expectations as there was a land sale gain worth RM56m (at PBT level) during the quarter. We do not anticipate subsequent quarters to replicate such strong earnings in the absence of land sales. With unchanged earnings estimates, we maintain OP and TP of RM0.62 pegged to PBV of 0.3x.

Within expectations. Strong 1QFY22 CNP of RM30.6m came in at 35%/43% of our/consensus estimates. Nonetheless, we deem this within expectation as there was a RM56m PBT gain from the completion of Sungai Buaya land sales (worth RM214m) recognised during the quarter. Note that we had anticipated this land sale and treat land sales as a core activity given that WCT has been disposing its non-core lands annually. No dividends were declared as expected.

Highlights. QoQ, 1QFY22 CNP of RM30.6m improved from a CNL of RM23.8m mainly because the previous quarter’s tax rate was distortedly high – arising from arbitration gains. YoY, 1QFY22 CNP improved 76% mainly on: (i) better EBIT contributions from its construction (+69%) and property investment division (+22%), (ii) lower effective tax rate (-24ppt), and lower JV losses (-37%). Note that 1QFY22 and 1QFY21 both recognised land sale gains of RM56m and RM76m, respectively (PBT level).

Key observations. Segmental construction EBIT margins during the quarter remains healthy at 5% which we feel should be sustainable moving forward as the group had adjusted margins downwards twice over the past two years to account for the industry inflation. JV losses (mainly from New World Hotel) during the quarter have also shrunk versus historical quarters alluding to improved occupancy rates and/or leaner operations.

YTD, WCT has yet to make any replenishment in contracts. Nonetheless, we keep to our replenishment target of RM1.0b (same as management) expecting a better 2H. We believe replenishment prospect for the group would mainly come from government-related tenders. As of March 2022, outstanding order- book stood at c.RM4.5b.

1QFY22 property sales of RM97m are within our target of RM550m, but trails management’s RM1.0b target. WCT plans to launch RM2.8b worth of properties in FY22. These are: (i) Hilltop 2, Mont Kiara (GDV: RM798m), (ii) W City OUG (RM927m), (iii) W City, Johor (RM1018m – includes residential and commercial), and (iv) Adenia (RM68m). Nonetheless, we believe the group would likely defer some launches given the current soft market. Unbilled sales stood at c.RM282m (1-year cover).

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

Keep FY22-23E earnings unchanged post results. Maintain OP with unchanged TP of RM0.62 (FY22E PBV of 0.3x). Despite the subdued prospects, current PBV valuations of 0.24x are close to the group’s trough levels of 0.17x (in March 2020) – which caps the downside. We foresee 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 - 27 May 2022