WCT order-book level seen as healthy

WCT Holdings Bhd (Sept 19, 93.5 sen)
Maintain “sell” with a higher target price (TP) of 71 sen: WCT Holdings Bhd announced that it had been awarded a RM1.77 billion building contract from Impian Ekspresi Sdn Bhd for the construction of Pavilion Damansara Heights Project (Phase 1). The scope of works consists of nine blocks of office towers and three blocks of service apartments. The work is expected to commence in September 2018 and be completed within a period of 38 months.

This is the second construction job win for the company, which brings the year-to-date (YTD) sum to RM2.35 billion. WCT’s order book increases substantially to around RM6.8 billion (from RM5 billion), which translates into a healthy cover of 4.9 times on financial year 2017 (FY17) construction revenue. 

While this contract win is positive, we remain cautious on the overall macro job flow outlook. This follows from the new government’s move to put all megaprojects under review, which would inevitably result in project roll-out delays or an outright cancellation.

We increase FY18 to FY20 earnings forecast by 2.8%, 10.4% and 13.0% respectively after adjusting FY18 order-book replenishment assumption as YTD construction job wins exceed our full-year target of RM500 million. We assume no further job win in the rest of FY18 due to the slowing job flow post the 14th general election.

We maintain our “sell” rating on the stock but with a higher sum-of-parts-driven TP of 71 sen, from 67 sen previously, following earnings forecast adjustment. Despite the healthy order-book level, the persistent weakness of the property market and rising rate environment are major headwinds for its de-gearing initiatives. Moreover, ongoing infrastructure project reviews and cancellations may further drag down the company’s construction segment prospects. — Hong Leong Investment Bank Research

This article first appeared in The Edge Financial Daily, on Sept 20, 2018.

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