WCT has accepted the Letter of Acceptance issued by Prasarana Malaysia Berhad to undertake and complete the Package TD1 – construction and completion of Johan Setia Depot (Phase 1) and associated works for Light Rail Transit Line 3 from Bandar Utama to Johan Setia, for a contract sum of approximately RM185.9mn. The scope of works includes site investigation works, traffic and road safety, health and environmental management, site clearance, demolition and earthworks, sub-structure works, drainage works, roadworks, electrical and mechanical works. The project is to be completed within a period of 18 months.

Our View

This is the first construction job win for the group in FY17. With this job win, the outstanding construction order book is estimated at RM4.9bn, which could provide earnings visibility for the next 3 years. Assuming a PBT margin of 6%, we forecast this project to generate a net profit of RM8.5mn or EPS of 0.6sen throughout the contract period.

Impact

No change to our earnings forecasts as this job win is within our FY17 order book replenishment assumption of RM1.0bn

Valuation

Maintain our SELL call on the stock with an unchanged target price of RM1.50, based on unchanged 14x CY17 construction earnings and 10x CY17 property earnings.

We think the share price has run ahead of its fundamentals. Downside risks could come from: i) lower-than-expected construction margins; ii) slower-thanexpected property sales and higher-than-expected marketing and promotional expenses; and iii) weak consumer sentiment that could potentially affect the rental reversion rates of its shopping malls.

Source: TA Research - 6 Apr 2017