WCT’s FY22 results met expectations with improved performance across the board. Driven by an improving construction sector outlook, we project WCT’s contracts drought to end with a higher job win assumption of RM1b in FY23 (from RM0.5b). We maintain our FY23F earnings and introduce a more upbeat FY24F set of forecasts and also keep our TP of RM0.46 and MARKET PERFORM call.

Within expectations. FY22 core net profit of RM49m (adjusted for taxation gain of RM63m, fair value gain of RM50m and write-downs worth RM45m) met our forecast and consensus estimate.

YoY, FY22 revenue rose 20% on improved performance across the board (construction, property development and property investment) against a pandemic-stricken period a year ago. Core net profit bounced back into the black from a loss a year ago.

Its construction division failed to secure any new job in FY22 vs. our assumption of RM500m (as well as its own target of RM1b). Nonetheless, replenishment prospects in FY23 are promising, underpinned by: (i) MRT3, (ii) Pan Borneo Sabah, (iii) Subang Airport expansion, and (iii) government hospital jobs. Therefore, we opt to raise our FY23F replenishment to RM1.0b from RM0.5b previously. As at end-3QFY22, its outstanding construction order book stood at c.RM3.4b (vs. a peak of RM6.4b during the last upcycle in 2018).

Forecasts. Despite missing our FY22 replenishment assumption, we keep our FY23F earnings unchanged on higher FY23F replenishment assumption of RM1.0b (from RM0.5b previously). Meanwhile, we introduce FY24F earnings of RM52m backed by RM1.5b contracts replenishment.

We maintain our SoP-TP of RM0.46 anchored by: (i) 9x construction PER, at the lower-end of our coverage’s PER range of 9x-18x given its historically thin margins on poor budgeting, and (ii) a 90% discount to its property RNAV, vs. 60%-65% ascribed to peers to reflect the low realisability of its GDV. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

WCT’s prospects hinge on: (i) the recovery of footfall and occupancy of its malls post pandemic, (ii) its ability to bag public infrastructure projects, particularly, a slice of action in MRT3, and (iii) monetisation of its malls and hotels through a REIT. However, we remain cautious over its high debt level (net gearing of 1.08x as of FY22) which would weigh on its profitability especially under a higher interest rate environment. Maintain MARKET PERFORM.

Risks to our call include: (i) a prolonged slow property market, (ii) sustained weak flows of construction jobs from both the public and private sectors, (iii) project cost overrun and liabilities arising from liquidated ascertained damages (LAD), and (iv) rising cost of building materials.

Source: Kenanga Research - 28 Feb 2023