PETALING JAYA: WCT Holdings Bhd shares closed higher on news that it had bagged a contract worth RM1.77bil for construction works relating to the proposed Pavilion Damansara Heights commercial development.
At 5pm yesterday, WCT, which is principally involved in engineering, construction, property development, saw its shares close seven sen up at 93 sen.
Analysts are positive on the contract win, given the cautious outlook on the construction sector as the government scales back on public projects.
TA Securities in a report yesterday pointed out that this was WCT’s second construction job win in 2018, bringing the company’s year-to-date job wins to RM2.33bil.
“The outstanding order book is now estimated at RM6.6bil, which could last the group for three to four more years. Assuming an operating margin of 7%, we expect this project to contribute a net profit of RM94.4mil or earnings per share of 6.7 sen throughout the contract period.”
The research house also said it is raising WCT’s 2018, 2019 and 2020 earnings forecast by 0.3%, 8.9% and 5.7% respectively.
An analyst from a local bank-backed brokerage said he was positive on WCT’s latest contract win.
“It is a boost for WCT’s order book given the cautious outlook for the construction sector at the moment. We are not changing our earnings forecast for the company,” he said.
WCT announced yesterday that its unit, WCT Bhd, had bagged the RM1.77bil job from Impian Ekspresi Sdn Bhd.
“The scope of works under the Contract shall encompass the execution and completion of 9 blocks of office tower and 3 blocks of service apartment on a podium block comprising retail space, mezzanine floors and works to lower ground floor and basement car park,” it said in a stock exchange filing.
Trading in WCT shares was halted between 9am and 10am yesterday morning in light of the announcement.
WCT said the works are expected to be completed within 38 months, with the contract commencing this month.
The contract is a recurrent related party transaction by virtue that Tan Sri Lim Siew Choon, the executive chairman of WCT, has an indirect stake in Impian Ekspresi, while both Lim and Datuk Lee Tuck Fook, the group managing director of WCT, sit on its board of directors.
For the first half ended June 30, 2018, WCT posted a net profit of RM82.16mil, a 52% increase from the corresponding period last year. This was mainly driven by the higher contribution from local infrastructure projects.
Net profit for the full financial year 2017 was RM154.6mil, more than doubled from the previous financial year.
AmInvest Research, in a recent research report, elaborates that there will be a shrinking pool of new jobs in the market, coupled with razor-thin margins for successful bidders as a result of severe undercutting among players.
“We believe WCT is mitigated by its substantial order backlog that should keep it busy over the next two to three years, coupled with its proven ability to compete under an open bidding system.
“Similarly, we are cautious on WCT’s other key businesses such as property development due to the prolonged downturn in the local property market, and property investment due to the oversupply of retail space in the market, coupled with e-commerce’s encroachment onto the brick-and-mortar shopping malls,” it said.