We  trim  our  FY14  forecast  by  4%  and  FV  by  4%  to  MYR2.21  from MYR2.30,  and  maintain  our  SELL  call.  This  follows  an  analyst  briefing last Friday,  during  which  WCT cut its guidance for FY13 contract wins by  half  to  MYR1bn  from  MYR2bn.  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.  

• MYR1bn Qatari job won’t happen this year. WCT cut its guidance for FY13 contract wins by half to MYR1bn from MYR2bn as the  outcome of bids  for a road/bridge job in Qatar  -  worth about MYR1bn -  is unlikely to be announced  this year. YTD, WCT has secured new contracts worth a total  of  MYR670m,  which  implies  contract  wins  of  at  least  MYR230m before the year is out. We believe these could potentially come from work packages relating to a “building cluster” job in Putrajaya.
• FY13 property sales target of MYR775m still good. WCT said that it is still on track to meet its FY13 property sales target of MYR775m, backed by  MYR1bn  in  new  launches,  despite  various  measures  introduced  by the  Government  recently  to  cool  off  the  property  sector.  As  at  end-3QFY13,  the  group  already  chalked  up  MYR462m  in  property  sales. While acknowledging that there has been “an obvious slowdown in sales” post the announcement of the measures, WCT expects buyers to return upon the emergence of “more clarity on the measures”.
• Forecasts.   We  trim  our  FY14  net  profit  forecast  by  4%  to  factor  in  a lower assumption for FY13 contract wins of MYR1bn vs MYR1.5bn.
• Maintain  SELL.  The  construction  sector  prospects  are  strong, underpinned  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 trimmed by 4% to MYR2.21 (from  MYR2.30),  based on a 16x  revised  fully-diluted FY14 EPS of 13.8  sen, in line with our benchmark 1-year forward target P/E of 10-16x for the construction sector.

Guidance For FY13 Contract Wins Halved
Highlights.  The key takeaways from WCT’s analyst briefing  last Friday  are: i) WCT cut its guidance for  FY13 contract wins by half to  MYR1bn from MYR2bn,  and  ii) it is still  on  track  to  meet  its  FY13  property  sales  target  of  MYR775m  despite  various measures introduced by the Government recently to cool off the property sector.

MYR1bn  Qatari  job  won’t  happen  this  year.  WCT  cut  its  guidance  for  FY13 contract wins by half to MYR1bn from MYR2bn (we had assumed MYR1.5bn), as the outcome of bids  for a road/bridge job in Qatar worth about MYR1bn is unlikely to be announced this  year. WCT had earlier emerged one of the three finalists for this job.

The company said  the finalists  were recently asked to submit a “fresh quotation” for the job. YTD, WCT has secured new contracts totaling  MYR670m  comprising: i)  a Putrajaya  building job  (MYR315m), ii) the  earthworks  package  for Zone 3 of Phase  1 of  Tun  Razak  Exchange  (MYR169),  iii)  additional  works  for  the  Qatari  government administrative  office  (MYR136m),  and  iv)  additional  works  for  various  local  jobs (MYR50m). This implies contract wins  of  at least MYR230m before the year is out. WCT hinted that these are likely to be local jobs, which we believe could potentially come from work packages of a “building cluster” job in Putrajaya known as “Parcel F” worth about MYR1bn.

FY13 property sales target of MYR775m still good. WCT said that it is still on track to meet its FY13 property sales target of MYR775m  (vis-à-vis MYR700m achieved in FY12), despite recent Government measures to cool off the property sector. Property sales  in FY13  will be backed  largely by MYR1bn  new launches coming from Medini, Iskandar  (MYR418m),  the  Klang  area,  i.e.  Bukit  Tinggi  2,  Bandar  Parklands  and Laman  Greenville  (MYR507m)  and  Bukit Jelutong,  Shah  Alam  (MYR120m).   As  at end-3QFY13, WCT already achieved MYR462m property sales, boosting its unbilled property  sales  to  MYR613m  (from  MYR480m  three  months  ago).  While acknowledging  that  there  has  been  “an  obvious  slowdown  in  sales”  post  the announcement of the measures, WCT expects buyers to return  as  “more clarity on the  measures”  emerge  (for instance,  an  exemption from  the  MYR1m  price  cap  for foreign property buyers in Medini, Iskandar).  In our earnings forecasts, we assume property turnover and EBIT of MYR350-500m and MYR70-100m per annum in FY13-14.

Forecasts.  FY14 net profit forecast is trimmed by 4% to factor in a lower assumption on FY13 contract wins of MYR1bn from MYR1.5bn.

Risks to our view.  These include: i) new construction contracts secured in FY13-14 to  beat  our targets  of MYR1bn and 1.5bn respectively,  and  ii)  lower-than-expected input costs.

Maintain SELL. The prospects for the construction sector are strong, underpinned 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 trimmed by 4% to MYR2.21 (from  MYR2.30) based on 16x revised fully-diluted FY14 EPS of 13.8sen, in line with our benchmark 1-year forward target P/E of 10-16x for the construction sector.

Source: RHB