INVESTMENT HIGHLIGHTS

• 3MFY18 results in-line

• Expecting headwinds from project reviews

• Adopting a ‘wait-and-see’ position

• Altogether, we adjust our recommendation to Trading Buy with SOP-based TP of RM1.47 per share

3MFY18 results inline. WCT’s 3MFY18 PATAMI of RM38.3m (+16% YoY) is inline with ours and consensus’ expectations, meeting 23.5% and 24.0% of full year estimates respectively. Compared to 3MFY17’s revenue of RM473.3m, 3MFY18’s revenue increased to RM539.7m (+14.0%YoY). The increase in revenue is impacted still by higher progress billings of on-going projects such as LRT3’s GS02/03/Depot.

Expecting headwinds from project reviews. Moving forward, WCT is expected to face headwinds from the government’s policy of reviewing projects such as Tun Razak Exchange and Pan Borneo Highway. As such, we reckon that the projects within its orderbook will face either compression in margin or revision in quantum of awards. WCT’s share price has been on the downtrend for the past year. To be fair, the fundamentals of WCT seems to be improving with stabilized earnings for the past 2 (1QFY18; RM38.3m and 4QFY17; RM59.2m) quarters and its 3MFY18’ cash of RM457.4m (+30.45%YoY) improved from last corresponding period to alleviate any rising concern over its total debt of RM4.9bn (FY17).

Adopting a ‘wait-and-see’ position. Thus, at this moment we reckon it is fair to adopt a ‘wait-and-see’ position before reviewing our earnings forecast - pending detailed announcements for projects such as TRX and Pan Borneo Highway. WCT’s orderbook is RM4.9bn or 2.8x cover of our FYE18 revenue forecast. The downside risk for FYE19/FYE20 would be lower orderbook replenishment rate for FYE18/FYE19/FYE20 and a potential review of c.RM1.0bn of its current orderbook from TRX and Pan Borneo projects.

Recommendation. Altogether, we adjust our recommendation to Trading Buy with SOP-based TP of RM1.47 per share. We are guided by the current fundamentals of the company (PE; 7.0x PBR; 0.3x, EY; 14.2% and NDE; 0.8x).

Source: MIDF Research - 24 May 2018