Results Review

• Excluding a one-off expense of RM7.9mn, WCT’s 1HFY24 core net profit of RM55.3mn exceeded expectations, accounting for 102% and 116.7% of ours and the consensus’ full-year estimates, respectively. This positive variance was mainly due to stronger-than-expected margin recovery in the construction division.

• YoY, 1HFY24 revenue increased by 1.8%, driven by significant growth in the property development division (+67.6%) and property management division (+20.5%). However, this was partially offset by an 18.2% decline in the construction division due to slower construction progress. Consequently, core net profit surged from RM5.6mn to RM55.3mn, supported by strong margin recovery in the construction division and a lower effective tax rate.

• QoQ, WCT’s 1QFY24 revenue fell by 19.5%, primarily due to slower progress billing from reduced construction activities, despite improvements in other business divisions. Nonetheless, core net earnings jumped 43.7% to RM32.6mn, attributed to the absence of profit distribution to Perpetual Sukuk holders, which impacted the previous quarter.

• The group’s net gearing remained at 0.9x as of end-2Q24. If the perpetual sukuk is treated as borrowings, net gearing would have increased to 1.20x as of end-2QFY24.

Impact

• Following the stronger-than-expected results, we have revised our margin assumptions for certain construction projects. As a result, our FY24/25/26F earnings forecasts have been raised by 63.7%/44.3%/66.3%, respectively.

Outlook

• Looking ahead, WCT is set to realign its focus on optimising margins across all divisions through various cost mitigation measures. Additionally, the group is leveraging its resources to secure new contracts from potential government infrastructure projects. Notably, its total outstanding order book stood at RM2.7bn, equivalent to 2.3x FY23 construction revenue. Currently, the group has an active tender book of more than RM13.0bn. Meanwhile, the property division is backed by unbilled sales of RM749mn.

Valuation

• Following the earnings revision, we raise our target price to RM1.54 from RM1.52, based on unchanged P/bk of 0.65x CY25 book value per share. Maintain Buy.

Source: TA Research - 28 Aug 2024