Results Review

• Stripping off the one-off expenses totaling RM6.5mn, WCT’s 1QFY24 core net profit of RM22.7mn beat both ours and the consensus’ expectations, accounting for 46.2% and 52.9% of ours and the street’s fullyear estimates, respectively. The positive surprise was mainly driven by stronger-than-expected performance for the property development and property investment divisions.

• YoY, 1QFY24 revenue increased by 15.5%, driven by higher sales in the property development division and improved occupancy and rental rates in the property investment division. However, this growth was partially offset by a decline of 5.8% in the engineering and construction division due to slower construction progress. WCT returned to the black with a core net profit of RM22.7mn in 1QFY24, compared to a core net loss of RM6.3mn in 1QFY23. We attribute this to better margins stemming from stabilising input costs. Notably, the reversal of certain accrued costs positively impacted the profits of the engineering and construction division.

• QoQ, the group's bottom line has turned positive, recovering from a core net loss of RM9.7mn. This improvement was primarily driven by the reversal of accrued costs on various projects, previously recorded due to project delays and the escalation of materials and labour costs in the immediate preceding quarter.

• The group’s net gearing level remained at 0.9x as of end-1Q24. If we treat the perpetual sukuk as borrowings, the net gearing would have increased to 1.20x as of end-1QFY24.

Impact

• Following the stronger-than-expected results, we raise our margin assumption for certain construction projects to reflect easing raw material costs. As a result, our FY24/25F earnings forecasts are increased by 10.3%/4.0%, respectively.

Outlook

• Despite the slower work progress and sluggish margin recovery, WCT remains cautiously optimistic about its outlook, focusing on project execution and cost recovery from completed projects. Meanwhile, it anticipates the rollout of mega projects in Malaysia in the near term, which could significantly boost its order book by securing more new contracts.

Valuation

• Following the earnings revision, we raise our target price RM0.56 from RM0.54, based on an unchanged 12x CY25 earnings. Maintain Sell on valuation grounds.

Source: TA Research - 30 May 2024