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 construction division’s order book remains healthy amidst the tough property sales outlook at a seven-year high of RM7.2bil, according to its management.
CIMB Equities Research said on Friday the order book was boosted after it secured the RM1.8bil mammoth building project for phase 1 of Pavilion Damansara Height (PDH).
Its order book composition is predominantly domestic (94% of total order book; 6% overseas), external (98% of total order book; 2% internal) and civil infrastructure based (64% of total order book; 36% building works).
“WCT aims to be able to sustain a 9%-10% pretax margin for construction, as there are still selected ongoing projects with relatively higher margins. Also, any potential margin downside from LRT 3 cost cuts can be mitigated by lower machinery cost spread over a longer project duration that was extended by four years due to the cost rationalisation exercise,” it said.
CIMB Research organised a meeting for 13 buy side fund managers and analysts with WCT to get up to speed on WCT’s strategies in 2H18F and 2019F.
Key topics were 1) implications of the recent RM1.8bn PDH building job, 2) guidance on the pending outcome of LRT 3 and MRT 2 cost rationalisation, 3) earnings drivers in 2H18F, 4) contract risks in 2019F, 5) revised plans for a REIT, and 6) job and property sales targets.
The pending outcome of LRT 3 cost rationalisation would affect WCT’s overall job scope value and profits, e.g. cancelling and/or redesigning stations.
One of the four stations in WCT’s RM1.5bil package has been scrapped (c.RM100mil to RM150mil), and another is being scaled down.
“It said project gross margins of 8%-10% can be preserved given reallocation of logistics and machinery over the four-year project extension but profit per annum will be reduced. WCT’s three LRT 3 packages form 20% of its RM7bil outstanding order book,” it said.
CIMB Research said the cost of MRT 2 could be reduced by 20%-25% or up to RM8bil, based on its industry checks. WCT’s RM971mil MRT 2 package (15% completed as at June 2018) makes up 13% of its outstanding order book.
“Details of how MRT 2 will be scaled down have yet to be announced but we believe it could mirror the outcome of LRT 3. We think it could have a negative impact on WCT’s scope (near Bandar Malaysia site),” it said.
The research house said in 2019, WCT will focus more on new tenders for building jobs as it targets RM1bil to RM1.5bil new wins (PBH Sabah, though could be delayed), PDH Phase 2, TRX high-rise) which is 30-50% lower than its YTD win of RM2.3bil.
Also, WCT aims to revive its REIT plans in mid-2019; to list four property investment assets (RM2.5bil total asset value) which would deconsolidate RM600mil worth of debts.
“We are not too excited about the revival of the REIT plans for now, given execution issues and delays in the past.
“LRT 3 and MRT 2 cost reduction, and challenging inventory-driven property sales could pose downside risks to our forecasts. About RM20mil to RM30mil land sale gains should support 2H18F overall earnings.
“WCT trades at minus one standard deviation to its 10-year mean price-to-earnings of 15 times but lacks catalysts.
“Our target price (89 sen) is based on 60% discount to RNAV with upside risks from the REIT angle and job wins. Downside risk is deteriorating property sales,” it said.
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