Post-3Q19 results briefing, we remain cautious on the outlook for WCT. While the construction division is backed by a strong outstanding order book, work progress for some key projects are progressing at less-thandesirable pace. Awards for mega infrastructure projects are unlikely to take place soon. For its property division, the outlook stays challenging despite the newly launched Paradigm Residence in JB is well-received. Maintain Sell with a slightly higher target price of RM0.92.

Construction Remains a Core Earnings Contributor

While the construction division is backed by strong order book of RM5.6bn as of end-September 2019, work progress for some key projects/ work packages such as LRT3, West Coast Expressway (WCE) and Pan Borneo Highway are moving at a slower-than-desired pace due to i) design optimisation for LRT3 which has yet to be finalised following cost rationalisation exercise; ii) delay in handing over of remaining site due to outstanding land acquisitions for WCE work package; and iii) shortage in supply of construction materials at Pan Borneo Highway package.

Meanwhile, WCT had earlier received a Letter of Intent for the construction contract for the Pavilion Damansara Heights Development – Phase 2, with an estimated value of RM1.0bn. It targets to finalise the terms and conditions by end-2019. The RM1.0bn job has yet to be included in the outstanding order book of RM5.6bn.

Its tender book hovers around RM RM5.5bn. WCT has prequalified for East Coast Rail Link construction project. However, we expect the tender for the work packages would only be called in 2H20. For the immediate terms, WCT is eyeing building works

Outlook for Property Development Remains Challenging

WCT’s property sales improved further from RM14mn in 1Q19, RM43mn in 2Q19, to record RM98mn in 3Q19. Majority of the sales is generated from Waltz Residences in Taman OUG, as well as sales of inventory units.

Unbilled sales eased slightly from RM108mn a quarter ago to RM105mn.

Paradigm Residences in Johor Bahru, with an estimated GDV of RM160mn was launched in September 2019. It is well-received and has achieved 62% of takeup rate.

Others

The management clarified that there were impairments totalling RM14.5m for debt due from JV partner for development in Vietnam after amicable settlement, and impairment of Kudat Water Supply Scheme retention sum.

Forecast

Earnings forecasts for FY19/FY20/FY21 are upgraded by 41.3%/59.7%/40.7% mainly due to adjustments to i) FY19 margins for the 3 key segments to reflect the extraordinary items in 3Q19 and upward revision in construction margins in line with mark-up in construction margins by WCT; ii) interest saving from issuance of perpetual sukuk; and iii) taxation.

Valuation

Following the upgrade in earnings, we tweak WCT’s target price from RM0.915 to RM0.92, based on unchanged 0.4x CY20 P/B ratio. Maintain

SELL.

Source: TA Research - 25 Nov 2019