WCT (9679) : WCT Holdings - Re-strategising for 2015
Target RM1.97 (Stock Rating: HOLD)
A potential REIT exercise was the slight positive surprise from WCT’s post-results briefing though it would take at least a year for a deal to materialise and for shareholders to benefit. This should balance out the subdued property development outlook and WCT's seemingly less aggressive construction target going into 2015. New orders from Qatar remain the wild card. We believe the speed of the rollout of jobs there could be affected by the fall in oil price. We maintain our RM600m-800m p.a. property sales target and RM1bn p.a. new order wins for FY14-16. Also intact is our target price, which is based on a 30% RNAV discount. We foresee limited catalysts for the stock in the medium term and reiterate our Hold call. Switch to Gamuda.
What Happened
WCT’s post-results briefing revealed that 1) The property sales outlook in 4Q is still weak and the post-GST (Apr-15) property outlook for the group remains fairly challenging. 2) WCT is no longer keen to bid for WCE subcontract works due to unattractive margins but is positive on bagging more jobs for Rapid and TRX. 3) It targets to ink a REIT deal for three of its five investment properties in the next 12 months.
What We Think
We came away feeling cautiously positive about the group's efforts to re-strategise though we sensed that management remained cautious about the outlook for property development in 2015 and is selective about job tenders in view of rising competition in the subcontract segment. Ascribing a 20-30% success rate p.a. to the group's RM3.8bn domestic tender book seems fair but we believe that job wins are more likely in 2H15, with 1H15 construction earnings supported by recent job wins and internal works. The plan to inject its property assets into a REIT is not entirely new. Based on the preliminary numbers for the REIT plans, WCT could realise RM400m-500m net proceeds, which could excite shareholders and lead to special dividends. However, we would have more conviction in this story once the structure reaches a more advanced stage.
What You Should Do
Stay on the sidelines. The worst could be over for the share price but the overall outlook remains weighed down by property. WCT could be more disadvantaged in light of the weakening property outlook that is affecting commercial and high-rise products more than landed units. Domestic construction wins, though selective, could buck the trend.
Source: CIMB Daybreak - 26 November 2014
Target RM1.97 (Stock Rating: HOLD)
A potential REIT exercise was the slight positive surprise from WCT’s post-results briefing though it would take at least a year for a deal to materialise and for shareholders to benefit. This should balance out the subdued property development outlook and WCT's seemingly less aggressive construction target going into 2015. New orders from Qatar remain the wild card. We believe the speed of the rollout of jobs there could be affected by the fall in oil price. We maintain our RM600m-800m p.a. property sales target and RM1bn p.a. new order wins for FY14-16. Also intact is our target price, which is based on a 30% RNAV discount. We foresee limited catalysts for the stock in the medium term and reiterate our Hold call. Switch to Gamuda.
What Happened
WCT’s post-results briefing revealed that 1) The property sales outlook in 4Q is still weak and the post-GST (Apr-15) property outlook for the group remains fairly challenging. 2) WCT is no longer keen to bid for WCE subcontract works due to unattractive margins but is positive on bagging more jobs for Rapid and TRX. 3) It targets to ink a REIT deal for three of its five investment properties in the next 12 months.
What We Think
We came away feeling cautiously positive about the group's efforts to re-strategise though we sensed that management remained cautious about the outlook for property development in 2015 and is selective about job tenders in view of rising competition in the subcontract segment. Ascribing a 20-30% success rate p.a. to the group's RM3.8bn domestic tender book seems fair but we believe that job wins are more likely in 2H15, with 1H15 construction earnings supported by recent job wins and internal works. The plan to inject its property assets into a REIT is not entirely new. Based on the preliminary numbers for the REIT plans, WCT could realise RM400m-500m net proceeds, which could excite shareholders and lead to special dividends. However, we would have more conviction in this story once the structure reaches a more advanced stage.
What You Should Do
Stay on the sidelines. The worst could be over for the share price but the overall outlook remains weighed down by property. WCT could be more disadvantaged in light of the weakening property outlook that is affecting commercial and high-rise products more than landed units. Domestic construction wins, though selective, could buck the trend.
Source: CIMB Daybreak - 26 November 2014
