WCT Holdings (WCT) slips into red, reporting a core net loss of RM254.5m in FY23 from a core net profit on RM74.6m in FY22. Losses were mainly attributed to its core division, construction, as on-going contracts are projects secured prior to the pandemic (which have lower margin as a result of high building materials prices). WCT’s FY23 full year core net profit is below our and streets’ estimates. We posit that the Group’s earnings growth moving forward will be largely dependent on its ability to replenish its construction orderbook. We also note that the Group has an internal property sales target of RM950m in FY24 excluding land sales. Group earnings in the near term will be underpinned by its property investment & management division but we remain cautious as with consumer sentiment still weak due to rising interest rates and high prices. Thus, we cut our earnings estimates further by 35% on average per annum in FY24-26F. We maintain our valuation methodology of PBV multiple, to reflect WCT’s value as the Group’s earnings picture is declining in addition to the absence of job wins in the last 24 months. All told, we downgrade our call on WCT to Underperform with a lower TP of RM0.42 (previously RM0.45), pegged at 0.15x PBV (-1SD).

• PBT slipped >100% YoY. The Group reported operating loss as a result of negative construction margins – project margins are compressed due to prolongation and construction cost escalations. That aside, its property division is also operating at a loss since 25% of the total sales are from the clearing of old inventory.

• RM2.7bn outstanding orderbook. As of 4QFY23, unbilled construction orderbook stood at RM2.7bn, providing earnings visibility of less than 2 years. Tenderbook on the other hand, stood at RM12bn though the Group has not been successful in securing jobs since FY22. On property segment, the division achieved RM856m sales in FY23, exceeding its FY23 internal target of RM750m. We note that the Group has an internal property sales target of RM950m in FY24 excluding land sales. We posit that the Group’s earnings growth moving forward will be largely dependent on its ability to replenish its construction orderbook. Group earnings in the near term will be underpinned by its property investment & management division but we remain cautious as with consumer sentiment still weak due to rising interest rates and high prices.

Source: PublicInvest Research - 1 Mar 2024