Results Review

• Excluding a net exceptional loss amounting to RM1.3mn, WCT reported 9MFY23 core net loss of RM6.9mn. This was below ours and consensus’s full-year profit forecasts of RM56.2mn and RM55.0mn, respectively. The variance was mainly due to lower-than-expected profit contribution from the construction division.

• YoY, the group recorded a core net loss of RM6.9mn in 9MFY23, versus a core profit of RM36.6mn a year ago, while revenue fell by 19.0% to RM1,325.7mn. The weaker earnings performance was mainly attributed to the construction division. The operating profit for the construction division fell by 76.8% to RM17.6mn from RM75.8mn a year ago, due to lower work progress for certain projects and lower margin.

• QoQ, the group recorded a core net loss of RM12.5mn as compared with a core net profit of RM11.9mn, mainly due to weaker earning performance in construction division as well as the distribution of profit to the Sukuk holders. The construction division sank into the red by registering an operating loss of RM5.0mn as compared to operating profit of RM13.5mn a quarter ago. Meanwhile, the revenue increased 17.0% to RM496.6mn.

• The group net gearing level increased slightly from 0.69x as of end-2Q23 to 0.7x as of end-3Q23. If we reclassify the perpetual sukuk as borrowings, the net gearing increased from 1.11x as of end-2Q23 to 1.14x as of end-3Q23.

Impact

• Given the weaker-than-expected results, we adjust our revenue recognition and margin assumptions for certain ongoing projects. Consequently, earnings forecasts for FY23/FY24/FY25 are reduced by 36.2%/3.1%/1.6%, respectively.

Outlook

• WCT’s outstanding order book stood at RM3.0bn as of end-Sept 2023, translating into 2.0x FY22 construction revenue. Meanwhile, its property division is backed by unbilled sales of RM383.0mn.

Valuation

• After revising the earnings forecasts, we tweaked the target price lower from RM0.57 to RM0.55, based on unchanged 12x CY24 EPS. Downgrade the stock from Buy to Hold.

Source: TA Research - 24 Nov 2023