News

• Winning more at RAPID. WCT was awarded a RM323m contract from PETRONAS for various civil and infra works for the Storm Drain Central Area at the Utilities, Interconnecting and Offsite (UIO) Facilities in RAPID. The scope of works encompass demolition, restoration, excavation, backfilling, storm drain, pilling, roads & pavement, underground piping, concrete, structural and electrical works which are scheduled for completion within 28 months.

SCooumthm ents

• 4rd contract win at RAPID. We are positively surprised with this contract win as WCT had already secured 2 previous contracts at RAPID this year. Including this job, WCT has managed to secure a total of 4 contracts from RAPID totalling RM1.2bn since mid-2014.

• Scaling new highs. With this recent contract, YTD job wins have totalled RM3bn, which is WCT’s highest in the past 8 years. We estimate its orderbook to currently stand at RM4.4bn, translating to a strong cover ratio of 3.8x on FY14 construction revenue. With such strong orderbook replenishment (mostly in 2H), WCT’s earnings visibility has certainly been boosted significantly compared to the earlier part of this year.

Risks

• Despite strong job wins this year, earnings delivery remains rather inconsistent from quarter to quarter.

Forecasts

• YTD job wins of RM3bn has surpassed our orderbook replenishment assumption of RM1.8bn. However, we are in no hurry to upgrade our forecast as FY15 is likely to register its worst ever performance (based on core earnings) in the past decade. Results for 4Q could continue to disappoint due to provisions for its building job in Qatar.
• Our earnings for FY15 are 54% below consensus as the latter has probably included non-operating forex revaluation gains (on balance sheet items) in its forecast.

Rating

HOLD TP: RM1.41

Despite strong job wins, the disappointing results leave us with a lingering scepticism on how swiftly this can translate to an earnings recovery. Whilst it is tempting to upgrade to a Buy on a potential earnings rebound, we are taking the prudently patient stance with our HOLD rating until more convincing recovery signs are seen.

Valuation

• Our SOP based TP of RM1.41 implies a hefty FY15 P/E of 35.1x but a more palatable 15x on FY16 once earnings recover (this being the caveat given its inconsistency in earnings delivery).

Source: Hong Leong Investment Bank Research - 16 Dec 2015