INVESTMENT HIGHLIGHTS

• To recap on WCT’s 1QFY19 results, the group’s headline PATAMI was reported at RM40.3m

• Going ahead, construction earnings will ride on its ample jobs outstanding of RM6.1b

• In 1QFY19, the group completed an RM55m land disposal in Klang. The gain was booked at RM30m

• De-gearing initiatives still in the works

• Earnings forecasts unchanged, with TP maintained at RM0.88

To recap on WCT’s 1QFY19 results, the group’s headline PATAMI was reported at RM40.3m. Largely, earnings was contributed by the Engineering and Construction (E&C) division, with a revenue share of 73.4%. We noted that the quantum was lower as some projects were already in completion stage. Meanwhile, property development division fared better in 1QFY19, attributable to a land sale exercise which pocketed RM30m in net profit.

Further details on the group’s plan were shared during a result briefing yesterday. Below are some of the key takeaways:

Construction earnings will ride on its huge jobs outstanding. As of 1QFY19, the amount of jobs outstanding stood at RM6.1b which will keep the group busy in the next three years. The current mix of construction job is composed of 44% building and 56% E&C jobs. The ratio is expected to balance at 50:50, following the completion of some infra, roadway and civil works in FY19. To recall, some projects which are due for completion in FY19 includes Petronas RAPID (in Pengerang), TRX (in Kuala Lumpur) and LRT3 (in Klang). Moving forward, we understand that profit margin would likely hover around high single-digit range given the large percentage of infra works.

Over to the property business, the group in 1QFY19 has completed a land disposal in Klang worth RM55m and which pocketed an RM30m gain. Shaving off the asset was deemed strategic in order to improve cash flow for the group. In the near term, it is looking to dispose some parts of its landbank located in Bukit Tinggi, Klang and Sungai Buaya, Selangor. On the impact to bottom-line, the margin against revenue is likely to hover between 20% and 40% for both locations.

De-gearing initiatives still in the works. The group plans to launch WCT REIT which comprises its retail malls and hotels with the aggregate amount for its asset value estimated at RM1.5b. Accordingly, the timeline on its establishment will hinge on the outcome of regulatory approvals. Upon full completion, the exercise is estimated to raise up to RM250m.

Earnings forecasts unchanged. We leave our forecasts unchanged for now. The current figures reflect our estimation on the group’s core operational earnings. Accordingly, our TP of RM0.88 remains, pegging the FY20EPS to PE of 11.0x. Our NEUTRAL call remains with outlook on the group is reasonably subdued by the soft property market, which in our opinion has not shown any significant signs of recovery. Moving forward, this would unlikely ease the environment for new property launches, hence putting pressure on the group’s recurring earnings. Whilst new launches (in affordable segment) are already on the horizon this year, the immediate priority seems anchored by efforts to sell the unsold units.

Source: MIDF Research - 29 May 2019