INVESTMENT HIGHLIGHTS

• FY16 earnings disappointing

• Earnings dragged by unrealized forex losses and expenses

• Earnings forecast unchanged

• De-gearing exercise starts

• Altogether, we maintan our SELL recommendation with a TP of RM1.61 per share

FY16 results disappointing. WCT’s FY16 earnings of RM65.1m (-69% YoY) fumbled below ours and consensus’ expectations at 50.6% and 56.2% of full year estimates respectively despite revenue rising from RM1.66bn in FY15 to RM1.93bn in FY16 (+19% YoY). The steep decline in earnings is dragged by unwavering total expenses which amounts to RM164.4m (-0.1% YoY) or 8.5% or FY16’s sales.

Earnings dragged by forex losses. Steep decline for FY16 results are attributable to WCT’s unrealized foreign exchange losses possibly from overseas projects such Lusail City, Qatar. Note that the project is ongoing with a target completion date of end 2017 hence WCT will be susceptible to forex losses due to operational expenditure.

FYE16/FYE17 Earnings forecast unchanged. Although, orderbook levels reaching RM4.3b; we forecast that earnings will be weak in upcoming quarters due longer project timeline such as Pan Borneo Highway and the less favourable USD/MYR rate for overseas projects.

De-gearing exercise starts. WCT has announced on the 23rd of February, 2017 that it has accepted letter of offer from EPF to acquire The Ascent located in Kelana Jaya amounting to RM347m. For us, the de-gearing exercise is long overdue and we are positive on the move.

Recommendation. Hence, we maintain our SELL recommendation with SOP-based TP of RM1.61 per share.

Source: MIDF Research - 24 Feb 2017