Results Review

• WCT’s 9M19 core profit of RM44.8mn came in within our expectations, but below consensus’ forecast, accounting for 80.9% and 38.0% of ours and consensus full-year forecast respectively.

• YoY, 9M19 core profit eased 4.0% to RM44.8mn as revenue declined by 16.4% to RM1,333.0mn. Construction division was the biggest drag, as it recorded 20.6% and 24.4% decline in revenue and EBIT to RM983.6mn and RM94.9mn. The lower revenue was due to some existing projects were nearing completion, coupled with slower progress of works for the ongoing projects.

• QoQ, core profit was sharply lower by 47.4% at RM12.1mn as revenue declined by 18.2% to RM368.3mn. The weaker performance was mainly due to slower construction revenue, which reduced by 25.8% to RM258mn, coupled with lower construction EBIT margin which eased by 1.8%-pts to 9.3%. This was in spite of the group enjoying a negative tax rate of 1.6% in 3Q19.

• Net gearing dropped significantly from 0.95x a quarter ago to 0.65x as of end-September 2019 after the issuance of RM617mn of perpetual sukuk to repay borrowings in 3Q19.

Impact

• No change to our FY19 to FY21 earnings forecasts pending an analyst briefing later today.

Outlook

• Its outstanding construction order book is estimated at RM5.5bn (excluding Pavilion Damansara Heights Development – Phase 2 project with an estimated contract value of RM1.0bn, which WCT has received Letter of Intent). This could provide construction earnings visibility for the next 3 to 4 years.

Valuation

• Pending an analyst briefing later today, we temporarily keep our target price unchanged at RM0.915, based on unchanged 0.4x CY20 P/B ratio. Maintain SELL.

Source: TA Research - 22 Nov 2019