Review

Excluding forex loss of RM9.0mn, WCT’s 9M16 core profit of RM73.9mn came in below expectations, accounting for 56.7% and 56.1% of ours and consensus’ full-year forecast respectively. The variance was mainly due to lower-than-expected contribution from the construction division, in terms of both top line and margin.

Y
oY, 9M16 core profit surged 160.8% to RM73.9mn on the back of 29.2% growth in revenue to RM1,480.4mn, thanks to better profitability recorded by all three divisions, i.e. construction (+17.2%), property development (+10.1%) and property investment (+31.1%), as well as significantly lower finance costs (-44.3%), due to change in accounting treatment in the property development division.

However, QoQ, 3Q16 core profit declined 7.8% to RM20.1mn as revenue fell sharply by 28.7% to RM414.4mn. This was mainly dragged lower construction revenue, which plunged 37.6% to RM313.9mn, and slight operating loss recorded by its construction division (assuming the forex gain of RM3.9mn in 3Q16 was recorded by the construction division). This was however, partially offset by better property earnings (+61.6%), lower finance costs (-43.1%) and lower taxation (-39.3%).

Impact

We keep our earnings forecasts unchanged with downward bias, pending guidance from the management in an analyst briefing later today.

Outlook

WCT carried an external construction order book of RM3.9bn as of end September 2016, translating into 3.0x FY15 construction turnover. This could provide construction earnings visibility for the next 2 to 3 years.

For its property division, the unbilled sales increased from RM529mn in 2Q16 to RM562mn in the reporting quarter.

Valuation

No change to our target price of RM1.54 at the moment, based on unchanged 14x CY17 construction earnings and 10x CY17 property earnings. Maintain SELL call on WCT.

Source: TA Research - 22 Nov 2016