Despite prevailing uncertainties, WCT remains optimistic of achieving their targeted contract replenishment of RM2.0bn and property sales target of RM1.0bn set earlier this year. Meanwhile, rising steel prices remain manageable for its construction division but property margins will remain suppressed in the near term due to clearing of old inventories that carry lower margins. BUY with a TP of RM0.64.

Management is keeping their high sales target despite having scaled back initial planned launches of RM1.7bn to RM0.8bn after deferring launches for Hilltop 2, MK (GDV: RM680m) and W City (GDV: RM280m) to FY22. Management revealed they have achieved total sales of RM0.3bn. However, in light of the deferred launches coupled with the fresh lockdowns announced over the weekend, we still find management’s target a tad bullish hence, we chose to remain conservative and keep our target of RM0.55bn unchanged for now.

Property contributions to remain weak in the near term. Its property division’s contributions will remain insignificant (or even posting a loss) as the group focuses on selling completed inventories which carry much lower GP margins – hindering the group from covering fixed operating and financing cost. The low margins are the result of multiple impairments (done previously) in order to drive sales in favour of cash. Meanwhile, potential land sales would provide earnings support for this division. Current unbilled sales stood at RM184m.

Management is still confident in securing RM2bn worth of replenishments backed by a tender-book of RM10bn. We believe the replenishment focus will largely come from East Malaysia (i.e. Sabah) from contracts such as: (i) Pan Borneo highway and (ii) Sabah-Sarawak link road. YTD, WCT has clinched RM580m worth of contracts. However, we are less optimistic and chose to keep our target replenishment of RM1.0bn.

Meanwhile, management is not overly concerned on the rising steel prices as steel only makes up 6-7% of their building jobs’ cost (and only 1-2% for infrastructure jobs). Moreover, not all building jobs are affected as steel is only consumed heavily during the structural stage – which some of its ongoing projects already passed

Source: Rakuten Research - 31 May 2021