WCT (9679) - WCT Holdings - Breakthrough in the Gulf
Target RM1.69 (Stock Rating: HOLD)
WCT's 70:30 JV has won a RM1.2bn contract in Qatar. The RM840m share of works bumps up its order book by 27% to RM3.9bn and is within our RM2bn new job assumption for FY15. We are thrilled that this long-awaited project has finally come through but we remain cautious about the group's property development earnings, which may see more downside. We retain our EPS forecasts, which are already ahead of consensus as we had imputed a recovery in construction. Our target price remains pegged to a 40% RNAV discount. This award should mitigate margin risks arising from the property development side. Maintain Hold as domestic awards for WCT are likely in 2H15. Muhibbah Engineering remains our small/mid-cap pick.
What Happened
WCT, through a 70:30 JV with Al-Ali Projects Co (W.L.L.) has won a contract from Lusail Real Estate Development Company for all the works relating to 1) commercial boulevard road D3, 2) road A4, 3) internal roads, and 4) utilities and underground car parks for Lusail Development Project in Doha, Qatar. The contract value is equivalent to RM1.2bn for the JV co. WCT's share of works is RM840m. The job is scheduled for completion in 2Q 2017.
What We Think
This is good news but not overly surprising as we had anticipated some recovery in WCT's tenders in the Gulf region following the delays in 2014. This new job should yield 7-8% pretax margins compared to the 9-10% margins for WCT's historical infra jobs in the Middle East given the rising competition. The contract value is in line with our RM2bn assumed job wins for FY15. This leaves over RM1bn worth of potential domestic projects in 2H15. We maintain our EPS forecasts as we assume its construction pretax margin will recover from 5% in FY14 to 6-8% in FY15-17. Securing this project should lift WCT's prospects in the Middle East, particularly in the Gulf region, going by the group's track record. The RM840m job could well be its single largest contract this year as other potential domestic jobs are likely to be smaller in value.
What You Should Do
Stay on the sidelines. Although this news reaffirms management's upbeat guidance on overseas contracts during its 4Q results briefing, we remain cautious about the group's property development outlook this year given the falling margin trend in FY14's operating numbers. We also believe that visibility of more chunky contracts from Qatar is still poor given the delays in 2014.
Source: CIMB Daybreak - 10 March 2015
Target RM1.69 (Stock Rating: HOLD)
WCT's 70:30 JV has won a RM1.2bn contract in Qatar. The RM840m share of works bumps up its order book by 27% to RM3.9bn and is within our RM2bn new job assumption for FY15. We are thrilled that this long-awaited project has finally come through but we remain cautious about the group's property development earnings, which may see more downside. We retain our EPS forecasts, which are already ahead of consensus as we had imputed a recovery in construction. Our target price remains pegged to a 40% RNAV discount. This award should mitigate margin risks arising from the property development side. Maintain Hold as domestic awards for WCT are likely in 2H15. Muhibbah Engineering remains our small/mid-cap pick.
What Happened
WCT, through a 70:30 JV with Al-Ali Projects Co (W.L.L.) has won a contract from Lusail Real Estate Development Company for all the works relating to 1) commercial boulevard road D3, 2) road A4, 3) internal roads, and 4) utilities and underground car parks for Lusail Development Project in Doha, Qatar. The contract value is equivalent to RM1.2bn for the JV co. WCT's share of works is RM840m. The job is scheduled for completion in 2Q 2017.
What We Think
This is good news but not overly surprising as we had anticipated some recovery in WCT's tenders in the Gulf region following the delays in 2014. This new job should yield 7-8% pretax margins compared to the 9-10% margins for WCT's historical infra jobs in the Middle East given the rising competition. The contract value is in line with our RM2bn assumed job wins for FY15. This leaves over RM1bn worth of potential domestic projects in 2H15. We maintain our EPS forecasts as we assume its construction pretax margin will recover from 5% in FY14 to 6-8% in FY15-17. Securing this project should lift WCT's prospects in the Middle East, particularly in the Gulf region, going by the group's track record. The RM840m job could well be its single largest contract this year as other potential domestic jobs are likely to be smaller in value.
What You Should Do
Stay on the sidelines. Although this news reaffirms management's upbeat guidance on overseas contracts during its 4Q results briefing, we remain cautious about the group's property development outlook this year given the falling margin trend in FY14's operating numbers. We also believe that visibility of more chunky contracts from Qatar is still poor given the delays in 2014.
Source: CIMB Daybreak - 10 March 2015
