WCT’s 1QFY24 results met expectations. Its 1QFY24 core net profit narrowed YoY on improved construction margins. It is poised for better prospects underpinned by the RM3.7b Subang Airport Regeneration Plan coupled with a new wave of public infrastructure projects. We maintain our forecasts, TP of RM0.66 and our OUTPERFORM call.

WCT reported a core loss of RM3.3m in 1QFY24 against our full-year net profit forecast of RM35.8m and the full-year consensus net profit estimate of RM42.9m. However, we consider the results within expectations as expect strong quarters ahead as construction billings accelerate.

YoY. Its 1QFY24 revenue rose 16% mainly driven by higher property revenue (+143%) on higher property sales (+157%). However, construction revenue fell 6% which was due to slower progress billings. Its core loss narrowed to RM3.9m (vs. a core loss of RM7.7m a year ago) on improved construction margins (we believe, after adjustments for work prolongation and escalation in input and labour costs previously).

QoQ. Its 1QFY24 revenue grew 16% on the back of 30% increase in construction revenue on higher construction progression. Its core net loss narrowed significantly to RM3.9m from RM245.9m a year ago (weighed down by a lumpy RM209.4m reversal of constriction profits owing to work prolongation and escalation in input and labour costs).

Outlook. We believe it is poised for a better FY24 on the impending roll-out of various public infrastructure projects such as: (i) MRT3 (RM45b), (ii) Bayan Lepas LRT (RM1b), (iii) Pan Borneo Sabah, (iv) Subang Airport Regeneration plan (RM3.7b), and (v) various government hospitals. As at Mar 2024, its outstanding order book stood at RM2.95b (from RM2.72b three months ago), while its tender book stands at >RM20b currently. Also helping, is the more benign cost environment.

Forecasts. Maintained.

Valuations. We maintain our SoP-driven TP of RM0.66 (see Page 3) with an unchanged: (i) 10x construction FY25F PER, which is at a discount to 18x we ascribed to mid-sized to large contractors given WCT’s much smaller size, and (ii) a 85% discount to its property RNAV, vs. 30%-50% ascribed on peers to reflect the low realisability of WCT’s GDV. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We like WCT for: (i) the improved prospects of the local construction sector with the anticipated roll-out of public projects, and (ii) the rising occupancy and hence rental incomes, profitability and valuations for its malls and hotels post pandemic, thus, making the monetisation of these assets via a REIT more plausible. Maintain OUTPERFORM.

Risks to our call include: (i) a weak flow of construction jobs from both public and private sectors, (ii) a prolonged slowdown in the local property market, (iii) project cost overrun and liabilities arising from liquidated ascertained damages (LAD), and (iv) rising building material cost.

Source: Kenanga Research - 30 May 2024