KUALA LUMPUR: CIMB Equities Research said although WCT’s de-gearing initiatives remain largely on track, it was disappointed that the real estate investment trust (REIT) plans have been deferred to 2Q18 due to land and tenancy matters.
“Overall, we conclude that the stock lacks strong medium-term catalysts. Retain Hold call with an unchanged target price (30% realised net asset value – RNAV - discount).
“Upside risks include securing the RM2bil KL-Klang Bus Rapid Transit (BRT) project sooner rather than later, while downside risks are weaker earnings in 2H17 and further delays in REIT plans,” it said.
CIMB Research said on Monday it came away from WCT’s post-2Q results briefing feeling positive about its surprisingly strong construction tenders but negative on property outlook and delay in its REIT plan.
For construction, WCT revealed the local civil works value of tenders stood at over RM9.5bil, including LRT 3, MRT 2 and the BRT project.
WCT is among five consortiums that submitted request for proposals (RFP). WCT also said it will also bid for the RM55bil East Coast Rail Link (ECRL) project.
The research house saidfFor the BRT project, each consortium has a foreign partner/contractor which has had prior experience in BRT projects.
While WCT did not disclose its partner, but historically, the group has had working relationships with Sinohydro for the Bakun hydroelectric dam project in Sarawak.
WCT has also subcontracted a portion of the ongoing Pan Borneo Sarawak package to China Communications Construction Company (CCCC). It is unknown at this juncture who are the remaining four consortiums.
BRT
“The BRT project is currently in the tender evaluation phase and could take another six to nine months to be awarded, in our view,” it said.
It is a build-operate-transfer (BOT) project, which means that the two to three years design/construction phase comes with an up-to 30-year concession period,” it said.
The BRT project will boost the order book of the winning consortium in addition to the benefit of recurring income similar to tolled highway concessions. More details to assess the viability of the concession are scant at this juncture.
CIMB Research understands that the BRT will be a 30-35km dedicated road (at grade and elevated) used for busses.
This is similar to the Sunway BRT project but on a larger scale. It will essentially trail along the Federal Highway with 10-12 stations and end at the Klang Bus station in central KL.
“Funding for this project will be undertaken by the winning consortium likely at 70:30 or 80:20 debt-equity ratio, in our view. Financial close usually takes up to a year subsequent to the award of the project,” it said.
Property rebates
As the research house had expected, management guided that its property rebates and repricing strategy will continue in 2H17 solely for its unsold property inventory, with no new launches planned for 2H.
New launches will only resume in 2H18 (c.1 year from now). The group’s RM500mil total property sales target remains intact and achievable but at the expense of margins.
Management guided that the 13% property EBIT margin in 2H17 has more downside in 2H17 due to the repricing.
For August year-to-date, it achieved RM185mil in property sales (1Q17: RM49mil, 2Q17: RM83mil, 3Q17 to-date: RM53mil).
Including RM80mil in pending sale and purchase agreements (SPA), the total effective property sales stood at RM265m. This is 53% of its unchanged full-year target of RM500mil.
Total unbilled sales as at 2Q17 stood at RM322mil. Unsold completed stock amounted to RM644mil.
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