INVESTMENT HIGHLIGHTS

• The 9MFY18 results came in below our expectation accounting for only 66.6% of our yearly estimate

• The E&C segment underpinned 9MFY18 growth of about +21.0%yoy

• But earnings were weighed down by property segments which experienced low take-up rate of unsold units

• We adjusted our earnings lower to make allowance for the grim outlook in property segment and the group’s lower than expected margin

• We recommend a BUY call on the stock with adjusted TP of RM1.05

Below expectations. The cumulative 9MFY18 earnings lagged our expectation accounting for 66.6% of yearly estimate, but within consensus expectation at 75.7%. Notably, total revenue dropped by -17.8% in 3QFY18, attributable to the slowdown in billings from the local and overseas infrastructure projects, coupled with lower sales volumes in the property segment.

Cumulative results in 9MFY18 were largely contributed by 6MFY18 income. We recall that the total revenue in 6MFY18 grew strongly by +41.4%yoy, which contributed about RM82.1m of PATAMI. Accordingly, the 6MFY18 aggregate contributed about 75.8% to 9MFY18 PATAMI.

Engineering and Construction segment (E&C) remained as the backbone to the group’s earnings. Notably, E&C represented approximately 80% of the group’s revenue, underpinned by its strong order book. Despite the slower recognition of work progress in 3QFY18, the cumulative 9MFY18 earnings has been encouraging, recording a +21.0%yoy growth in operating profit. This was on the back of stronger progress billings in 2QFY18, owing to the local and overseas infrastructure projects.

Revenue in property segment dipped -35.2%yoy in 9MFY18, steered by lower sales volume registered in the period. We noted that the drop was primarily due to low take-up rate of stock units in the Klang Valley and Medini Iskandar region coupled with the absence of new launch during the period. Despite the slowdown, cumulative operating profit was recorded +17.0%yoy higher attributable to land sales exercise.

Impact to earnings. Given the earnings deviation, we believe adjustment to our earnings estimate is necessary while taking into account the current progress of construction works and low take-up rate of unsold property units. Accordingly, we revised down our earnings estimate by -13.9% for FY18. However, our FY19 forecast is maintained at this juncture, to reflect our stable outlook on earnings recognition.

Recommendation. We peg our FY19EPS to PE of 13.0x (which is within our construction sector’s average) to arrive at a new TP of RM1.05 hence provides cushion for hard landing or earnings blip in the future. Notably, WCT is trading at price-to-book ratio of 0.36x, implying an attractive opportunity to increase exposure.

Source: MIDF Research - 27 Nov 2018