WCT’s  FY14  results  missed  expectations  as  property  profits disappointed.  We  cut  our  FY15/16  earnings  forecasts  by  17/16% respectively, TP by 15% to MYR1.40 (17% downside) from MYR1.64 and downgrade  our  call  to  SELL  from  Neutral.  WCT  has  yet  to  secure  any work  packages  from  the  Klang  Valley  MRT  project.  Also,  its  property business is facing headwinds amid various cooling measures.

A  big  miss.  WCT’s FY14  core  net  profit  of  MYR101.8m  (excluding disposal losses, forex gains and investment impairment) missed our and consensus estimates by 31% and 30% respectively as its property profits disappointed. Its FY14 core net profit contracted 21% YoY on the back of weaker  profits  from  all  divisions,  ie  construction,  property  development and property investment.  

Actively  pursuing  local  and  overseas  jobs.  Locally,  WCT  is  eyeing the remaining earthworks of the Tun Razak Exchange (MYR300-400m), civil  works  for  a  processing  plant  in  Pengerang  (MYR1bn),  the  118-storey Warisan Merdeka Tower project (MYR2.5bn, via a 40:60 JV with a Middle East-based foreign contractor), earthworks for Kwasa Damansara (MYR1bn)  and  Line  3  of  the  light  rail  transit    project  (LRT3)  (MYR9bn). Overseas,  it  has  submitted  bids  for  various  basic  infrastructure  works (roads, bridges, tunnels etc) worth MYR1bn in Lusail, Qatar.  

Forecasts.  We  cut  our  FY15/16  earnings  forecasts  by  17%/16% respectively to factor in lower property development profits.

Risks  to  our  view:  i)  job  wins  in  FY15F-17F  falling  short  of  our MYR1.5bn  per  annum  assumption,  ii)  higher-than-expected  input  costs, and iii) weak demand for its property launches.

Downgrade  to  SELL  from  Neutral.  The  prospects  for  the  construction sector are strong, underpinned by the MYR73bn Klang Valley mass rail transit  (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  job.  Its  property  business  is  facing  headwinds  amid various  sector  cooling  measures.  We  cut  our  TP  by  15%  to  MYR1.40 (from  MYR1.64)  based  on  12x  revised  fully-diluted  FY15F  EPS  of  11.7 sen and in line with our benchmark sector 1-year forward target P/Es of 10x-16x.  At  the  current  price,  the  stock  is  trading  at  14x  fully-diluted FY15F EPS, which is rich given its rather muted near-term prospects.

Financial Exhibits

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 (ie operating shopping malls and hotels).

Recommendation Chart

Source: RHB