Results Review

• WCT’s 1HFY23 core profit of RM5.6mn came in below expectations, accounting for 8.5% and 7.7% of ours and consensus’ full-year estimates. The variance was mainly due to lower-than-expected profit contributions from the construction division.

• YoY, 1HFY23 core profit dropped 80.7% to RM5.6mn as revenue was 28.9% lower at RM829.1mn. The weaker earnings performance was largely attributed to the construction division. The operating profit for the construction division dropped by 24.0% to RM22.6mn from RM29.7mn a year ago due to the slower pace of construction progress for certain projects. Meanwhile, the property division returned to the black by posting an operating profit of RM16.0mn compared to an operating loss of RM11.6mn a year ago.

• QoQ, the group recorded a core profit of RM11.9mn as compared with a core net loss of RM6.3mn, mainly thanks to higher profit contribution from both construction and property development divisions. Meanwhile, the revenue increased 4.9% to RM424.5mn.

• The group net gearing level increased slightly from 0.67x as of end-1Q23 to 0.69x as of end-2Q23. If we reclassify the perpetual sukuk as borrowings, the net gearing increased from 1.10x as of end-1Q23 to 1.11x as of end-2Q23.

Impact

• Given the weaker-than-expected results, we adjust our revenue recognition assumptions for certain ongoing projects. Consequently, earnings forecasts for FY23/FY24/FY25 are reduced by 14.6%/4.1%/7.5%, respectively.

Outlook

• WCT’s outstanding order book stood at RM3.1bn as of end-June 2023, translating into 2.1x FY22 construction revenue. Currently, the group has an active tender book of more than RM10.0bn. Meanwhile, the property division is backed by unbilled sales of RM332.0mn.

Valuation

• After revising the earnings forecasts, we tweaked the target price lower from RM0.59 to RM0.57, based on unchanged 12x CY24 EPS. Maintain Buy call on WCT.

Source: TA Research - 30 Aug 2023