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INVESTMENT HIGHLIGHTS
• Profit came in short of expectation. WCT recorded a net profit of RM68.7m for 1H10, down -15%yoy and -3.4%qoq. Meanwhile, 1H10 turnover dropped 57% yoy due to lower recognition from its construction division. The numbers accounted for about 40% of our full year estimate of RM175m.
• Earnings recovery on the horizon. We expect earnings to recover in the subsequent quarters as its ongoing jobs should pick up momentum, including the New Doha International Airport, Qatar, Medini Iskandar earthworks, Sepang LCCT earthworks and also BCC hotel fits out.
• Higher margin in 1Q10. WCT recorded higher construction margins in 1H10 arising from billings recognised. Moving forward, we expect construction margins to range between 13-15% as compared to 8-10% in 2009.
• Orderbook remains strong. The group continued to aggressively bid for new jobs, both overseas and domestic in order to replenish its existing orderbook of RM3.2b. WCT is bidding for jobs in overseas markets as well as domestic especially in Iskandar Malaysia, Johor and a major water infrastructure work in Sabah.
• Risk factors. The main risk factor is the slump in construction works and poor billing progress that could put a dampener to a stronger earnings recovery.
• No change in our forecast. With the expectation of earnings recovery, we have retained our forecast for FY10 and FY11 despite the result being below than our estimates.
• Maintain BUY call. We maintain our target price of RM3.30, with a potential upside of 20.2% (including dividend yield of 3.2%) from its current share price of RM2.82, backed by positive outlook in the construction sector and WCT’s proven track record in securing jobs, both domestic and in the Middle East.
INVESTMENT STATISTICS
KEY RESULT POINTS
Profit came in short of expectation. WCT recorded a net profit of RM137.4m for 1H10, down 15% yoy and -3.4% qoq. Meanwhile, 1H10 turnover dropped 57% yoy due to lower recognition from its construction division.
Earnings recovery on the horizon. In terms of WCT’s segmental breakdown, it posted yoy decline of 44% in revenue from its civil engineering & construction (E&C) division, while property contribution revenue fell 45% yoy due to the sluggish demand for its property.
However, we expect earnings recovery in the subsequent quarters as its ongoing jobs should pick up momentum which include the New Doha International Airport, Qatar, Medini Iskandar earthworks, Sepang LCCT earthworks and also BCC hotel fits out. For this FY, we estimate a net profit growth of 19%, backed by its construction and property divisions. On its property division, WCT has a total GDV of RM4b, which have yet to be launched.
Higher margins in 1Q10. WCT recorded higher construction margins in 1H10 arising from billings recognised for major jobs which include Abu Dhabi F1. Moving forward, we expect construction margins to range between 13-15% as compared to 8-10% in 2009.
Orderbook remains strong. The group continued to aggressively bidding for new jobs, both overseas and domestic in order to replenish its existing orderbook of RM3.2b. WCT is bidding for jobs in overseas markets as well as domestic especially in Iskandar Malaysia, Johor and a major water infrastructure work in Sabah. We believe that WCT
would remain its 50:50 split between local jobs and the Middle East contracts.
No change in our forecast. With the expectation of earnings recovery, we retained our forecast for FY10 and FY11 despite the result being below than our estimates.
RISKS
The main risk factor is the slump in construction works and poor billing progress that could put a dampener to a stronger earnings recovery.
VALUATION
Maintain BUY call. We maintain our target price of RM3.30, with a potential upside of 20.2% (including dividend yield of 3.2%) from its current share price of RM2.82, backed by positive outlook in the construction sector and WCT’s proven track record in securing jobs, both domestic and in the Middle East.
• Profit came in short of expectation. WCT recorded a net profit of RM68.7m for 1H10, down -15%yoy and -3.4%qoq. Meanwhile, 1H10 turnover dropped 57% yoy due to lower recognition from its construction division. The numbers accounted for about 40% of our full year estimate of RM175m.
• Earnings recovery on the horizon. We expect earnings to recover in the subsequent quarters as its ongoing jobs should pick up momentum, including the New Doha International Airport, Qatar, Medini Iskandar earthworks, Sepang LCCT earthworks and also BCC hotel fits out.
• Higher margin in 1Q10. WCT recorded higher construction margins in 1H10 arising from billings recognised. Moving forward, we expect construction margins to range between 13-15% as compared to 8-10% in 2009.
• Orderbook remains strong. The group continued to aggressively bid for new jobs, both overseas and domestic in order to replenish its existing orderbook of RM3.2b. WCT is bidding for jobs in overseas markets as well as domestic especially in Iskandar Malaysia, Johor and a major water infrastructure work in Sabah.
• Risk factors. The main risk factor is the slump in construction works and poor billing progress that could put a dampener to a stronger earnings recovery.
• No change in our forecast. With the expectation of earnings recovery, we have retained our forecast for FY10 and FY11 despite the result being below than our estimates.
• Maintain BUY call. We maintain our target price of RM3.30, with a potential upside of 20.2% (including dividend yield of 3.2%) from its current share price of RM2.82, backed by positive outlook in the construction sector and WCT’s proven track record in securing jobs, both domestic and in the Middle East.
INVESTMENT STATISTICS
KEY RESULT POINTS
Profit came in short of expectation. WCT recorded a net profit of RM137.4m for 1H10, down 15% yoy and -3.4% qoq. Meanwhile, 1H10 turnover dropped 57% yoy due to lower recognition from its construction division.
Earnings recovery on the horizon. In terms of WCT’s segmental breakdown, it posted yoy decline of 44% in revenue from its civil engineering & construction (E&C) division, while property contribution revenue fell 45% yoy due to the sluggish demand for its property.
However, we expect earnings recovery in the subsequent quarters as its ongoing jobs should pick up momentum which include the New Doha International Airport, Qatar, Medini Iskandar earthworks, Sepang LCCT earthworks and also BCC hotel fits out. For this FY, we estimate a net profit growth of 19%, backed by its construction and property divisions. On its property division, WCT has a total GDV of RM4b, which have yet to be launched.
Higher margins in 1Q10. WCT recorded higher construction margins in 1H10 arising from billings recognised for major jobs which include Abu Dhabi F1. Moving forward, we expect construction margins to range between 13-15% as compared to 8-10% in 2009.
Orderbook remains strong. The group continued to aggressively bidding for new jobs, both overseas and domestic in order to replenish its existing orderbook of RM3.2b. WCT is bidding for jobs in overseas markets as well as domestic especially in Iskandar Malaysia, Johor and a major water infrastructure work in Sabah. We believe that WCT
would remain its 50:50 split between local jobs and the Middle East contracts.
No change in our forecast. With the expectation of earnings recovery, we retained our forecast for FY10 and FY11 despite the result being below than our estimates.
RISKS
The main risk factor is the slump in construction works and poor billing progress that could put a dampener to a stronger earnings recovery.
VALUATION
Maintain BUY call. We maintain our target price of RM3.30, with a potential upside of 20.2% (including dividend yield of 3.2%) from its current share price of RM2.82, backed by positive outlook in the construction sector and WCT’s proven track record in securing jobs, both domestic and in the Middle East.
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