INVESTMENT HIGHLIGHTS

• WCT booked RM450.1m revenue in 2QFY19, -32.8%yoy lower than the same period last year

• Construction revenue came in at RM725.6m in 1HFY19, a drop of –22.1%yoy

• Its property business in 1HFY19 has booked revenue of RM137m, lower by -28.6%yoy

• Property Investment and Management recorded RM102m of revenue in 1HFY19, to earn RM50m in profits which was a marked improvement from last year

• Maintain NEUTRAL with an unchanged TP of RM0.88

WCT booked RM450.1m revenue in 2QFY19, -32.8%yoy lower than the same period last year. Accordingly, it earned RM22.7m PATAMI in 2QFY19 to arrive at cumulative amount of RM63.0m (- 20.7%yoy) in 1HFY19. The latter constitutes 73.5% and 62.8% of our and consensus full year estimates. It tracked ahead of our forecasts, due to RM30m net gain booked from land disposal in 1QFY19.

Construction accounted 75% of the group’s revenue in 1HFY19. It came in at RM725.6m, a drop of –22.1%yoy. Despite being backed by strong orderbook, we noted that some projects were already nearing completion with the others still at the early stage of construction. Hence, we did not see much contribution from these projects, which led to a slow progress billing. Further into that, we learned that projects which are due completion in FY19 (as at 31 March 2019) includes RAPID, Pengerang (RM40m OB), TRX, Kuala Lumpur (RM116 OB), and WCE (RM140m OB), which entails civil and infrastructure works.

Challenges for the property business, the group in 1HFY19 has booked revenue of RM137m, lower by -28.6%yoy. The decline was partly a result of high base effect, due to land divestment done in FY18. Its sales as of 2QFY19 stood at RM82m, which was -26% behind its last year’s. Prospectively, WCT look forward to launch new property projects which they intend to accommodate for affordable segment. However, we do not think that the new roll outs to turn tangible soon, in consideration of the currently soft property market. In the meantime, some idle land banks were already identified for divestments to improve the group’s operating cashflow. These assets are located in Bukit Tinggi, Klang and Sungai Buaya, Selangor.

Property Investment and Management. The segment recorded RM102m of revenue in 1HFY19, earning RM50m in profits. It was a marked improvement from last year, knowing that growth was underpinned by improved occupancy level in Paradigm Mall in Johor Bahru and higher rental income from Bukit Tinggi Shopping Mall in Klang.

New orderbook from Pavilion Damansara Heights? The group, via its wholly owned subsidiary has received a Letter of Intent from from Jendela Mayang Sdn Bhd for the construction and completion of the project’s proposed commercial development. The job entails the execution and completion of office block, hotel and residential towers to with a sum estimation of RM1b. The letter subject is to further finalization and is not contractually binding yet. Therefore, we have not imputed the number into our assumptions.

Earnings forecasts unchanged. We leave our forecasts unchanged for now, pending further updates from management today.

Maintain NEUTRAL with unchanged TP of RM0.88, pegging the FY20EPS to PE of 11.0x. Our call on the stock remains with outlook reasonably subdued by the soft property market, which in our opinion has not shown any significant signs of recovery. Moving forward, this would hardly ease the environment for new property launches, hence putting pressure on the group’s recurring earnings. Whilst new launches in affordable segment are already in the cards, the immediate priority seems anchored by efforts to sell the unsold units. Maintain NEUTRAL.

Source: MIDF Research - 28 Aug 2019