Results Review

• Excluding extraordinary items totalling RM171mn, WCT’s 9MFY24 core earnings of RM49.7mn fell below our expectations but met the consensus’ forecasts, accounting for 56% and 75% of our and the street’s full-year estimates, respectively. The weaker performance was primarily attributed to slower-than-expected construction progress and higher-thananticipated operating expenses.

• YoY, its 9MFY24 revenue declined moderately by 3.4%, primarily due to a 24.6% reduction in revenue recognition from the construction division, which was caused by deferred progress. However, this was offset by strong growth in the property development division (+60.4%) and the property investment division (+24.7%), supported by higher property sales and billings, as well as increased occupancy rates and rental income from its malls. As a result, core earnings returned to a profit of RM49.7mn, compared to a core net loss of RM6.9mn in 9MFY23, supported by effective cost controls and improved project margins.

• QoQ, its 3QFY24 revenue experienced a 16.2% increase, driven by contributions from the construction division (+21.5%), property division (+10.3%), and property investment division (+12.6%). Despite this, the group recorded a core net loss of RM5.6mn, mainly due to higher operating expenses in the construction division and profit distributions to Sukuk holders.

• The group’s net gearing remained at 0.9x as of end-Sept 2024. If the perpetual sukuk is treated as borrowings, net gearing would increase to 1.1x as of end-3QFY24.

Impact

• Following the weaker-than-expected results, we have tweaked our progress billing and margin assumptions for certain construction projects. As a result, our FY24/25/26F earnings forecasts have been reduced by 22.4%/8.6%/8.2%, respectively.

Outlook

• WCT remains focused on monetising its three retail properties— Paradigm Mall Petaling Jaya, Paradigm Mall Johor Bahru, and Bukit Tinggi Shopping Centre—via a REIT listing on the Main Market of Bursa Malaysia. Collectively valued at RM2.4bn, these properties will form the newly established “Paradigm REIT,” which has already submitted its application for approval to the Securities Commission Malaysia on 19 November 2024. Paradigm REIT will acquire the assets by issuing 1.6bn new units at an assumed price of RM1.00 and making a cash payment of RM837mn. The listing is expected to be completed by 1HCY25.

• We view this development positively, as it is expected to significantly reduce borrowings, potentially saving approximately RM50.1mn in annual interest expenses. Post-utilisation of the disposal proceeds, WCT’s net gearing is projected to decline to 0.33x from 0.93x (pro forma, based on audited FY23 figures).

• As of end-November 2024, the group’s total outstanding order book stood at RM2.4bn, equivalent to 2.1x FY23 construction revenue. WCT also has an active tender book exceeding RM13.0bn, while its property division is supported by unbilled sales of RM1.0bn.

Valuation

• Following the earnings revision, we tone down our target price to RM1.53 from RM1.54, based on unchanged P/bk 0.65x CY25 book value per share. Maintain Buy.

Source: TA Research - 27 Nov 2024