We envision investor sentiment towards WCT to remain weak given its Middle  East  exposure.  We  maintain  our  NEUTRAL  call,  but  lower  our FY14-16 earnings forecasts by 2-6% and TP by 19% to MYR1.64  (6.5% upside). WCT is also not an ideal proxy to the local construction sector as  it  has  yet  to  secure  any  Klang  Valley  MRT  jobs.  In  addition,  its property business is facing headwinds amid various cooling measures.

Construction job wins fell short in FY14. WCT missed its construction orderbook replenishment target of MYR2bn in FY14. It ended FY14 with new job wins of only  MYR994m  vis-à-vis  its guidance for MYR2bn (and our assumption of MYR1.5bn).

Weaker prospects in the Middle East market.  The recent  collapse in crude  oil  prices  will  have  a  negative  bearing  on  oil  wealth,  and  henceimpede  the ability of certain  oil exporting  countries in the Middle East to continue  with  their  spending  on  lavish  projects.  While  contracts  in  the Middle  East  only  make  up  11%  of  WCT’s  current  order  backlog,  the Middle  East  remains  an  important  market  to  WCT.  WCT  is  currently bidding for basic infrastructure works (roads, bridges, tunnels, etc) worth MYR1bn in Lusail, Qatar, and its guidance for job wins  has always been MYR1bn each from Malaysia and the Middle East every year.                                                        

Forecasts.  We reduce our FY14-16 earnings forecasts by 2%, 6% and 6% respectively to factor in actual job wins of only MYR994m in FY14 vis-à-vis our assumption of MYR1.5bn.

Risks to our view:  i) job wins in FY15-16 falling short of our MYR1.5bn per  annum  assumption,  ii)  higher-than-expected  input  costs,  and  iii) weak demand for its property launches.

Maintain  NEUTRAL.  The  prospects  for  the  construction  sector  are strong, underpinned by the MYR73bn Klang Valley MRT project, which should  keep industry players busy until 2021. However, WCT is not an ideal  proxy  as  it  has  yet  to  secure  any  Klang  Valley  MRT  jobs.  Its property  business  is  facing  headwinds  amid  various  sector  cooling measures. We cut our TP by 19% to MYR1.64 (from MYR2.02) based on 12x  (from 14x)  revised  fully-diluted FY15F EPS of  13.7  sen,  in line with our benchmark sector 1-year forward target P/Es of 10-16x. The reduced multiple is to reflect investor’s weakened sentiment towards WCT,  given its Middle East exposure.

Source: RHB