We  downgrade  our  call  to  SELL  from  Neutral  following  the  9MFY13 results, which met our expectations but missed consensus estimates, to reflect  the absence of near-term stock re-rating catalysts.  Our  FY13-14 forecasts and MYR2.30 FV are maintained. WCT is not good proxy to the construction  sector  in  Malaysia  as  it  has  yet  to  secure  any  work packages from the Klang Valley MRT project.

• Within our expectations, but misses consensus. WCT’s core 9MFY13 net  profit  of  MYR126.1m  (excluding  a  MYR5.1m  disposal  loss  and MYR20.2m forex gain) met our expectations, making up  75% of our fullyear forecast  but  missing  market  estimates,  at only 63% of  consensus’ full-year forecast.  Its core 9MFY13 net profit eased 2% y-o-y on the back of flat  performance from all three core divisions  of  construction, property development and property investment.
• In pursuit of  Qatari and Putrajaya jobs.  During the last analyst briefing in August, WCT reiterated its guidance for MYR1.5bn of new construction contract wins  for  FY13. As it has YTD only secured jobs worth a total of MYR511m,  this  implies  that  it  should  secure  contracts  worth  about MYR1bn before the year is out.  The company believes this is achievable given that: i) it has emerged one of three finalists for a road/bridge job in Qatar  worth  about  MYR1bn,  and  ii)  it  is  in  the  running  for  a  “building cluster” job in Putrajaya known as “Parcel F” worth about MYR1bn.
• Forecasts. Maintained.
• Risks to our view.  These include:  i)  contract wins  in FY13-14  missing our  target  of  MYR1.5bn  annually,  ii)  higher-than-expected  input  costs, and iii) overseas jobs encountering various problems.
• Downgrade to SELL from Neutral.  The construction sector’s prospects are  strong,  buoyed  by  an  extended  upcycle  driven  by  the  MYR73bn Klang  Valley  MRT  project,  which  will  keep  players  busy  until  2019. However, WCT is not good proxy to the sector as it has yet to secure any work packages from the mega project.  Also, given its rich valuations, we believe  investors  should  only  revisit  the  stock  on  dips.  Our  FV  is unchanged  at  MYR2.30,  based  on  16x  fully-diluted  FY14  EPS  of  14.3 sen, in line with our benchmark 1-year forward target P/E  of  10-16x for the construction sector.

Financial Exhibits

SWOT Analysis

Company Profile
WCT is a home-grown construction company that has expanded to the  Middle East. It is also engaged in property development and property investment (operating shopping malls and hotels).

Recommendation Chart

Source: RHB