WCT and China Communications Construction Company (CCCC) in a 60:40 JV has secured a RM899.8m contract from the Malaysian government to undertake the expansion of Sapangar Bay Container Port in Sabah. We are positively surprised as we did not expect any public project roll-outs amidst the pandemic. In addition, WCT’s YTD wins of RM1.12bn have surpassed our RM1bn target. BUY with a TP of RM0.64 based on unchanged FY22E PBV of 0.3x. At current PBV valuation of 0.23x, we find WCT’s valuations appealing in view of an earnings rebound post pandemic.

WCT and CCCC in a 60:40 JV has secured a RM899.8m contract from Sabah Economic Development and Investment Authority (on behalf of the Government of Malaysia) to undertake the expansion of Sapangar Bay Container Port. The contract will span 42 months from Sept 2021 to Feb 2025.

Firstly, we had expected public project roll-outs to be held back amidst the height of this pandemic and secondly, WCT’s effective win of RM540m (60% stake) brings cumulative YTD replenishment to RM1.12bn; surpassing our RM1.0bn. As a result, we increase our order-book replenishment target by 20% to RM1.2bn.

We still keep our replenishment below management’s RM2.0bn guidance because we think the other sizeable tenders targeted by WCT such as the Pan Borneo Sabah and Sabah Sarawak Link Road are unlikely to be awarded this year as the government would likely conserve funds to prioritise pandemic assistance packages. Note that the funds for the Sapangar Bay Port expansion project had been allocated by the federal government since 2016 under the 11th Malaysian Plan.

Earnings outlook. In tandem with the higher FY21E replenishment target of RM1.2bn, we increase FY22E earnings by 3% to RM84m. We had assumed an 8% EBIT margin for this newly won contract. Post win, outstanding order-book stood at RM5.7bn (3.5x cover).

Source: Rakuten Research - 9 Jul 2021