We are maintaining FY13-14 forecasts and fair value of RM1.65 following the latest contract win, i.e. MYR169.3m earthwork package for Tun Razak Exchange (TRX), that has already been imputed in our forecasts by virtue of our assumption of MYR1.5bn new contract wins in FY13. While we expect better appetite for construction stocks post the 13th general election, WCT’s valuations have run ahead of its earnings.

-  Second key job in FY13. WCT has been awarded by 1MDB Real Estate Sdn Bhd a MYR169.3m contract for earthworks, retaining walls and foundation works for Phase 1 of TRX. This is the second key contract WCT has secured in FY13, boosting its YTD new contract wins to MYR484m and outstanding construction orderbook by 5% to MYR3.4bn (see Figure 1) from MYR3.2bn. Assuming an EBIT margin of 7-8%, the contract will fetch MYR11.9-13.5m EBIT over a 26-month contract period. We are positive on the latest development.

-  Forecasts. Maintained as we have already assumed WCT to secure MYR1.5bn worth of new contracts in FY13.

-  Risks to our view. These include: (1) New construction contracts secured in FY13-14 to surpass our target of MYR1.5bn p. a.; (2) Lowerthan-expected input costs; and (3) Good execution of overseas jobs.

-  Maintain Sell. We believe investors should stand by in wetsuits, ready to take the plunge and dive for value in the event of a heavy selldown on construction stocks ahead of the 13th general election. After the 13th general election when the dust settles, over a longer investment horizon, we believe investors should refocus on sector fundamentals that are reasonably attractive underpinned by a construction upcycle. However, at the current price, we believe WCT’s valuations have run ahead of its earnings. Fair value is MYR1.65 based on 13x fully-diluted FY13 EPS of 12.7sen, in line with our benchmark 1-year forward target PER of 8-13x for the construction sector.

Source: RHB