KEY INVESTMENT HIGHLIGHTS

• Core earnings sank into the red at -RM11.3m, a decrease of - 136.3%qoq
• Slower construction progress led to -24.57%yoy lower segment revenue for 9MFY24 of RM700m compared to RM928m for 9MFY23, but profit margins improved by 3.1%
• Outstanding order book at RM2.93b; with a tender book of >13b
• Maintain NEUTRAL with an unchanged TP of RM0.97

Below expectations. WCT Holdings Bhd (WCT) bottom line improved during the quarter by +16.7%yoy, though still in the red at -RM11.3m in 3QFY24. This was after excluding an RM184m net gain after tax arising from the remeasurement of interest in a jointly controlled entity.

Cumulative 9MFY24 core earnings however did increase by +335.3%yoy.

Meanwhile, the cumulative 9MFY24 bottom line rebounded to RM20.1m, from a loss of -RM8.6m during the same period last year. This makes up only 30% and 30.3% of ours and consensus' full-year projections.

Engineering and construction. Revenue for the segment declined - 24.57%yoy to RM700m in 9MFY24 mainly due to slower construction progress, while operating profit came in +94.44%yoy higher at RM35m, with a notable improvement in margins to 5.0% from 1.9% in the same period last year. We expect stronger progress billings in the coming quarters as newer projects accelerate.

Property development. 9MFY24 revenue for the segment rose +60.0%yoy to RM384m, delivering an operating profit of RM37m, an increase of +48.0%yoy, attributable to the higher sales and billing of properties. Total unbilled sales as at Nov-24 was RM1,046m while unsold completed inventories stood at RM98m as at Sep-2024.

Property investment and management. This segment continued to be the group's main bottom line contributor with a 9MFY24 operating profit of RM284m (+273.68%yoy) on the back of a stronger 9MFY24 revenue of RM197m (+24.7%yoy), attributable to higher occupancy and rental rates for its malls and higher contribution from hotels. There is however, a non-core profit arising from a net gain after tax on remeasurement of interest in a jointly controlled entity, amounting to approximately RM184m.

The group's outstanding order book stands at RM2.93b, with strong earnings visibility up to FY27. WCT has made some progress this year in terms of jobs replenishment after a two-year hiatus. The group is actively bidding for jobs, with a tender book of more than RM13.0b. Management has allocated more resources in order to secure new jobs, both in Malaysia and overseas. Five ongoing projects are due for completion in 2024 with a value of RM142m. Year-to-date, it has secured RM463.7m of new jobs or 23.2% of the RM2.0b replenishment target. We believe future job wins may come from the Penang International Airport (PIA) expansion, Pan Borneo Sabah, other packages for the North-South Expressway expansion and potentially its first data centre project.

Earnings estimates. We slash our FY24E earnings estimates by -10.2% to RM60.1m to account for the weaker than expected performance in FY24 but maintain our FY25/26 estimates for now.

Target price. We maintain our TP at RM0.97, derived by pegging its FY25F EPS of 5.4 sen to a PER of 18x, which is +1SD above its 10-year mean.

Maintain NEUTRAL. We are maintaining our NEUTRAL recommendation on WCT. While prospects remain bright for the construction sector for WCT to replenish more jobs, the recent rise in its share price by close to +80% since Jun-24, has stretched its valuations for a fair bit. The group had also recently announced its proposal to set up and list a REIT on the Main Market of Bursa Malaysia, which will comprise three of its retail malls. Apart from allowing WCT to unlock the value of its malls, the group will also be able to raise funds to pare down its borrowings. With total borrowings of RM3.48b as at 30 Sep 2024, the group has a high net gearing of 82%.

Source: MIDF Research - 27 Nov 2024