WCT (9679) - WCT Holdings - Light at the end of the tunnel?
Target RM1.69 (Stock Rating: HOLD)
WCT was yet again optimistic about the construction outlook during its post-4Q14 results briefing. However, the difference between now and 3Q is a potential revival in the tenders in the Gulf region. We stated this as the wild card (in 3Q) and would be more convicted about the Gulf-story once real progress is made. The negative takeaway, which was not surprising at all, was the still-cautious property market outlook. This mainly drives the cuts in our FY15-17 EPS forecasts. Our target price is intact as we update for balances in the landbank: still pegged to a 40% RNAV discount. All eyes would be on the construction side in the coming months. Maintain Hold. We recommend switching to Muhibbah Engineering, our preferred small/mid-cap pick.
What Happened
WCT held its post-results briefing today. Management was represented by Head of Corporate Finance Mr Chong Kian Fah. Key points: 1) Property market remains challenging for 2015. Sales in Medini Iskandar remain weak with selected upcoming launches in the Klang Valley. 2) Management targets RM600m-650m total sales in 2015, 3) Total tender book still looks good, with some likely external recoveries in tender prospects in Qatar, and 4) RM2bn targeted total new order book for 2015 is intact, equally split between domestic market and the Gulf region. 5) A potential REIT exercise is still in the exploratory stage; with management still aiming for a clearer deal structure by end-2015.
What We Think
At this juncture, we do not think management is too bullish about its RM2bn new order book target though we maintain ours at RM1.5bn for 2015. The good news is WCT is retendering for the RM400m-500m subcontract works for the West Coast Expressway (WCE) given the change in package structure, and is vying for a subcontract job in Rapid. It is also tendering for the RM3bn KL118 tower via a JV with Middle East player Arabtec, mentioned at the previous briefing. The still-cautious property development outlook prompted us to cut our property sales assumptions by 15-20% to RM500m-650m total property sales p.a.. Our earnings outlook is more conservative now, with upside coming in only from a strong recovery in construction. At the current order book of RM3bn with no replenishments, we estimate that WCT can hit RM120m-130m in total group net profit, suggesting that FY15 earnings are unlikely to decline.
What You Should Do
Stay on the side lines pending a likely recovery in tender newsflow.
Source: CIMB Daybreak - 27 February 2015
Target RM1.69 (Stock Rating: HOLD)
WCT was yet again optimistic about the construction outlook during its post-4Q14 results briefing. However, the difference between now and 3Q is a potential revival in the tenders in the Gulf region. We stated this as the wild card (in 3Q) and would be more convicted about the Gulf-story once real progress is made. The negative takeaway, which was not surprising at all, was the still-cautious property market outlook. This mainly drives the cuts in our FY15-17 EPS forecasts. Our target price is intact as we update for balances in the landbank: still pegged to a 40% RNAV discount. All eyes would be on the construction side in the coming months. Maintain Hold. We recommend switching to Muhibbah Engineering, our preferred small/mid-cap pick.
What Happened
WCT held its post-results briefing today. Management was represented by Head of Corporate Finance Mr Chong Kian Fah. Key points: 1) Property market remains challenging for 2015. Sales in Medini Iskandar remain weak with selected upcoming launches in the Klang Valley. 2) Management targets RM600m-650m total sales in 2015, 3) Total tender book still looks good, with some likely external recoveries in tender prospects in Qatar, and 4) RM2bn targeted total new order book for 2015 is intact, equally split between domestic market and the Gulf region. 5) A potential REIT exercise is still in the exploratory stage; with management still aiming for a clearer deal structure by end-2015.
What We Think
At this juncture, we do not think management is too bullish about its RM2bn new order book target though we maintain ours at RM1.5bn for 2015. The good news is WCT is retendering for the RM400m-500m subcontract works for the West Coast Expressway (WCE) given the change in package structure, and is vying for a subcontract job in Rapid. It is also tendering for the RM3bn KL118 tower via a JV with Middle East player Arabtec, mentioned at the previous briefing. The still-cautious property development outlook prompted us to cut our property sales assumptions by 15-20% to RM500m-650m total property sales p.a.. Our earnings outlook is more conservative now, with upside coming in only from a strong recovery in construction. At the current order book of RM3bn with no replenishments, we estimate that WCT can hit RM120m-130m in total group net profit, suggesting that FY15 earnings are unlikely to decline.
What You Should Do
Stay on the side lines pending a likely recovery in tender newsflow.
Source: CIMB Daybreak - 27 February 2015
