Reiterate BUY. Post analyst briefing, we are more upbeat on WCT: (i) there is strong construction orderbook replenishment prospects of up to MYR1.5b, (ii) construction and property development progress billings could accelerate in 4Q13 after the slowdown in 3Q13 caused by labour shortage, leading to FY13 earnings potentially surpassing our forecast, (iii) higher than anticipated rental rates at the Gateway@KLIA2, opening in May 2014, would provide the earnings upside in FY14. These improved prospects would lift sentiment on the stock that has been a laggard among its construction peers. BUY at an unchanged MYR3.00 TP (14x FY14 PER plus 20sen from Gateway@KLIA2).

Upbeat on jobs replenishment. Including MYR186m variation orders for its Qatar and local projects, WCT’s job wins YTD is MYR670m. WCT is confident on clinching a portion of the Putrajaya buildings construction contract before year-end that is worth MYR1.3b-1.4b in total, bringing local job wins to meet its MYR1b target for the year. It is still confident of winning a MYR1b Qatar project but the award would be slightly delayed to early FY14 as WCT is submitting a revised tender; the deadline for the project award is now Feb 2014. WCT’s outstanding orderbook (end-Sep 2013) remains strong at MYR2.74b.

FY13 results to outperform? Management alluded that construction and property billings in 3Q13 were negatively impacted by the labour shortage issue faced by its subcontractors due to illegal workers crackdown by the government. However, WCT has taken mitigating measures by sourcing labour directly for its subcontractors. Hence, progress billings in 4Q13 are expected to accelerate by more than 20% QoQ, and hence FY13 results would potentially be above our forecast.

Gateway@KLIA to contribute from mid-FY14. WCT has build up a good track record in shopping mall and hotel management and is now in a stronger position to grow its property investments to enhance its recurring earnings base. Gateway@KLIA2 will open in May 2014 with an expected tenancy rate of 80% (presently 77%). The latest average rental rate guided by management is MYR22/sq ft, significantly higher than the MYR15/sq ft guided previously. Our earnings forecasts, based on a rental rate of MYR10/sq ft therefore has upside potential.

Source: Maybank Research - 25 Nov 2013