INVESTMENT HIGHLIGHTS

• In 1QFY19, WCT reported headline PATAMI of RM40.3m

• E&C division contributed 73.4% of total external revenue

• Property development staged a jump, reporting +51.8% larger revenue at RM85.0m

• The sale of undeveloped land contributed a revenue and net profit of RM55m and RM30m respectively

• Maintain NEUTRAL with an unchanged TP of RM0.88

In 1QFY19, WCT Holdings (WCT) reported headline PATAMI of RM40.3m, on the back of RM514.6m revenue. In comparison to last year, the PATAMI was seen climbing by +8.8%yoy despite the revenue dipped - 4.7%yoy. The headline earnings for WCT came in above our and consensus expectations at 47.1% and 36.4% of respective full year estimates. We understand from management that there were no specific exceptional items during the quarter. However, it is worth pointing out that WCT’s 1QFY19 result was largely supported by its land sale exercise.

Engineering and construction division (E&C) contributed 73.4% of total external revenue. Subsequently, its operating profit was reported at RM33.1m (vs 59.2m last year). The amount was noticeably weaker, as some projects approached completion. Meanwhile, other projects which include the newly clinched TRX project are still in the early stage of construction. At operating level, profit margin contracted - 4.52ppts(yoy) to 8.7% on the account of lower expected margin from the group’s on-going construction margin. In the near term, the group’s orderbook which largely comprised infra works is likely to compress the group’s average margin.

Property development staged a jump in the quarter, reporting +51.8% larger revenue at RM85.0m. The stark jump was owing to the sale of undeveloped land which contributed to revenue and net profit of RM55m and RM30m respectively. On the division’s core business, few launches of property projects could be in the horizon to potentially cater for affordable segments. We believe, enhancing supplies in the aforesaid segment is supposedly strategic on the account of oversupply and affordability concerns in the market. Meanwhile, the group’s underlying priority remains on reducing its unsold property units as well as divesting some of its idle land banks to enhance operating cashflows.

Source: MIDF Research - 28 May 2019