INVESTMENT HIGHLIGHTS

• 9MFY17 result disappointing

• New World Hotel and Paradigm Mall, Johor Bahru could rejuvenate income stream

• Maintain earnings forecasts

• Altogether, we reiterate our SELL recommendation with a TP of RM1.47 per share

9MFY17 results disappointing. WCT’s 9MFY17 PATAMI of RM95.3m (+47% YoY) went below ours and consensus’ expectations, meeting 58.3% and 69.5% of full year estimates respectively. Compared to 9MFY16’s revenue of RM1.4bn, 9MFY17’s revenue decreased to RM1.32bn (-10.0%YoY). The reduction in revenue is impacted still by lower contribution from property segment, unwavering admin expenses of RM65.3m (-23%YoY) or 26.1% of GP* of RM249.6m and finance costs of RM40.0m (-20%YoY) or 16% of GP. But total liabilities of RM4.5bn must be addressed swiftly to reduce the impact on earnings for the next quarter.

New World Hotel and Paradigm Mall, Johor Bahru could rejuvenate income stream in the future. We reckon that the opening of New World Hotel, Petaling Jaya and Paradigm Mall, Johor Bahru would rejuvenate income streams to the property segment and provide better tenancy profiles to its property portfolio.

Maintain earnings forecasts. We are adamant in maintaining our forecast for FYE18/FYE19 on the assumption that earnings will still be suppressed in upcoming quarters. This is due to longer project timeline such as Pan Borneo Highway and clarity of management’s direction on debt reduction despite its orderbook swelling to RM5.9bn from the recent LRT3 Merchant Square-Suria Damansara) GS02 Package.

Recommendation. Altogether, we maintain our SELL recommendation with SOP-based TP of RM1.47 per share.

Source: MIDF Research - 23 Nov 2017