KEY INVESTMENT HIGHLIGHTS

• Earnings slipped into the red

• Engineering and construction segment remains subdued

• Revenue of property investment and management segment down -7.7%yoy to RM48m

• Earnings estimates revised lower

• Downgrade to NEUTRAL (from BUY) with revised TP of RM0.52 (from RM0.64)

Earnings slipped into the red. In 1QFY20, WCT registered topline of RM363.08 (-29.5%yoy) from RM514.65m in the year before. At PATAMI level, it recorded a net loss of -RM0.02m (>-100%yoy) from RM40.32m in the previous year. The bottomline figure was below both our and consensus expectations.

Engineering and construction segment remains subdued. E&C segment represented for 67% of WCT’s total revenue, underpinned by its current order book which stood at over RM6.2b – including the latest job award, i.e. RM1.2b superstructure for Pavilion Damansara Heights (Parcel 2). This segment posted -36.2%yoy lower revenue of RM241m in 1QFY20 from RM378m in 1QFY19. The decline was on the back of (1) slower work progress for some construction projects, and (2) the revision in the expected margin of certain projects.

Revenue of property investment and management segment down -7.7%yoy to RM48m in 1QFY19 compared to RM52m in the previous year. Lower contribution from the segment was due to the lower contribution from retail mall and hotel operations.

Earnings estimates revised lower. Post 1QFY20 financial results, we revised down our FY20 and FY21 earnings forecasts by -45.2% and - 15.2% due to earnings underperformance in the review quarter.

Downgrade to NEUTRAL (from BUY) with revised TP of RM0.52 (from RM0.64). We adjusted our TP lower to RM0.52 due to WCT’s worse-than-expected latest performance. The new target price was arrived after pegging a PE multiple of 11x to WCT’s FY21EPS (note that we roll forward our valuation base year to FY21). We downgrade our BUY call on the stock to NEUTRAL with a TP of RM0.52 (previously RM0.64).

Source: MIDF Research - 26 Jun 2020