KEY INVESTMENT HIGHLIGHTS

• Overall revenue shrank -4.5%yoy to 368.3m in 3QFY19

• Construction sector was the largest contributor, reporting revenue of RM983.6m (-20.6%yoy) in 9MFY19

• Property sale billings dropped -11.61%yoy to RM198.8m

• Positively, property investment and management upped +14.3%yoy with income recorded at RM150.6m

• Maintain Neutral with an unchanged TP of RM0.88

The group recorded revenue of RM368.3 in 3QFY1 which was - 4.5%yoy lower from the same period last year. Cumulatively, it generated topline of RM1.3b (-16.4%yoy) for 9MFY19, which translated to RM76.3m (-26.8%yoy) in PATAMI. Accordingly, the earnings aggregate for 9MFY19 came in at 89.1% and 70.7% of our and consensus expectations. The number was ahead of our estimate as we previously imputed slower progress billings for some of its construction projects.

Construction segment earned revenue of RM983.5m, a drop of - 20.60%yoy. Engineering and construction segment contributed 73.8% to the group’s revenue in 3QFY2019. We understand that the decline in the amount of revenue and operating profit was due to (1) existing projects which were already near completion, and (2) lesser work done for ongoing projects. Going ahead, we understand from WCT that project execution will continue to be their sole focus to ensure sustainability in revenue and profits.

Billings from property development was recorded at RM198.9m, lower by -11.61%. Notably, the deviation was due to high base effect in FY18, following the sale of undeveloped lands in 2018. The group has launched two new projects in 2019, namely Aronia Apartments (affordable apartments) in Bandar Parklands Klang and Paradigm Mall Johor Bharu. The take up rate for Paradigm Mall has been encouraging, with estimated GDV at 160m. Accordingly, we believe these new launches will continue to support earnings while efforts to reduce its unsold units remain a priority.

Property Investment and Management grew +14.26%yoy to RM150.6m. The growth was mainly derived by the improved occupancy level of Paradigm Mall in Johor Bharu and higher rental income from Bukit Tinggi Shopping Mall in Klang. This segment is expected to continue generating stable revenue and profits, while providing strong operational cash flows.

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 at 11x. Due to the optimization of gearing level, the group will continue to embark on its de-gearing initiative in order to strengthen its financial position. 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. This would hardly ease the environment for new property launches, hence putting pressure on the group’s recurring earnings. Maintain NEUTRAL

Source: MIDF Research - 22 Nov 2019