INVESTMENT HIGHLIGHTS

• To recap, WCT earned RM22.7m PATAMI in 2QFY19 to arrive at cumulative amount of RM63.0m (-20.7%yoy) in 1HFY19

• Unbilled jobs stood at RM5.8b as of June 2019

• Letter of Intent received for RM1b worth of jobs

• Property business backed by RM108m worth of unbilled sales

• Earnings forecast adjusted for FY19F

• Maintain NEUTRAL with an unchanged TP of RM0.88

To recap, WCT 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. Yesterday, the management has held a briefing with analyst to provide further explanation on the results as well as its outlook on the business prospect. Few things we wish to highlight include the progress on construction projects, the outlook for property segment and its strategy moving forward.

Unbilled jobs stood at RM5.8b as of June 2019. Based on its revenue booked in FY18, the quantum will keep the group busy in the next three years. Given the slowdown in progress, we noticed that few jobs had its completion date extended. These are namely TRX, Kuala Lumpur (RM79m OB), West Coast Expressway (RM138 OB) projects, with both involving civil and infrastructure works. Job replenishment in CY19 is currently slowmoving, with only RM119m recorded YTD.

Letter of Intent received for RM1b worth of jobs. We note that WCT has just received a Letter of Intent for a proposed construction of commercial development in Pavilion Damansara Heights. Should WCT come to the project’s finalization this year, it would mean raising its current job outstanding by +17.3%yoy. The job’s estimated sum of RM1b has yet to be imputed in our forecasts, pending its official award. Other potential job flows could come from the portion of ECRL project, which the group expects to bid in 4QFY19 onwards. WCT did not specify which sections of ECRL they are eyeing on, given their scarcity of details. For what it’s worth, the value of jobs to be tendered could potentially be more than RM1b, based on the resources it is able to deploy.

Property business backed by RM108m worth of unbilled sales. As of August 2019, WCT has recorded property sales of RM107m, driven by the take-up rate for its Imperial Residence and Laman Greenville units. In its efforts to improve operating cashflow, WCT aims to divest its landbank assets located in Bukit Tinggi, Klang and Sungai Buaya, Selangor. The group has yet to sign any new SPA this year.

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. WCT’s de-gearing initiatives remain intact, with a proposed establishment of WCT REIT comprising Paradigm Mall Petaling Jaya, AEON Mall and Premiere Hotel (exclude New World Hotel). We opine the target launch date by mid- 2020 is probable, subject to improving market condition. Looking at the current environment, we will not be surprised if the launch date is deferred again.

Earnings forecasts. We increased our forecasts by +27% for FY19F but kept our FY20F numbers unchanged, to reflect our core earnings estimates.

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. NEUTRAL.

Source: MIDF Research - 29 Aug 2019