WCT 1H core net profit below CIMB Research forecast

During the quarter in review, the construction and property development company saw its revenue grow 14.1% to RM539.79mil from RM472.88mil in the previous corresponding period, while its earnings per share increased to 2.71 sen from 2.62 sen previously.

KUALA LUMPUR: WCT Holdings Bhd’s core net profit for the first half ended June 30, 2018 was below CIMB Equities Research and consensus' expectations due to lower construction and property development margins.

The research house said on Tuesday the earnings were at 36% of its and 32% of Bloomberg consensus FY18 forecasts.

“Excluding RM35mil in land sale gain and unrealised forex loss,WCT’s 1H18 core net profit fell 34.5% on-year. Property development’s core EBIT (ex-land sale gains) surprisingly fell 53% on-year, implying a tougher market condition even for its unsold inventories,” it said.

CIMB Research said construction was the best performer but 1H18 margin appeared weak. Its target price was 84 sen, which was below the last traded price of 94 sen.

Segmentally, construction was the best performer. Higher recognition of external infrastructure jobs brought construction and engineering segment’s EBIT up 87% on-year in 1H18. 

However, EBIT margin fell from 10% in 1Q18 to 6% in 1H18, despite stronger billings for local outstanding jobs, where margins are typically higher. 

The group’s outstanding order book stood at RM5bil, which should provide good earnings visibility over the next two to three years.

In 2Q18, WCT recognised RM35mil one-off gains from land sale. Most of the gains came from a compulsory acquisition by Prasarana Malaysia Bhd for the rail alignment of the LRT 3 project.

The group also sold one parcel of land in Rawang. Stripping out the RM35mil one-off gains, its property development segment’s EBIT margin would come to a mere 3.8% (1H17: 12%), suggesting weak inventory-driven sales in 1H18. 

“Its RM300mil property sales target for FY18 could be difficult to achieve, in our view.

“Year-to-date, the group has secured only one job worth RM555mil, for the construction of TRX’s (Tun Razak Exchange) Lifestyle Quarter. 

“Our FY18F order book replenishment forecast of RM1.5bn remains lower than WCT’s target of RM2bil,” it said.

CIMB Research said WCT's overall 1H18 results were a negative surprise, weighed down by the seemingly weak property development division, which may face a challenging sales outlook in
2H18F. 

“Our target price remains pegged to a 60% discount to RNAV. YTD, the stock has declined 49.5%, making it one of the worst performers in our construction universe. 

“We foresee limited re-rating catalysts in 2H18F and hence maintain our Hold rating,” it said.