WCT Bhd (Nov 18, RM2.25)
Maintain outperform at RM2.40 with revised target price of RM3.20 (from RM3.30): Though we keep our valuation basis of 20% realisable net asset value (RNAV) discount, our target price is trimmed as we update for balance sheet items. The potential revival of project flows in the coming months supports our “outperform” call. WCT remains one of our top construction picks.
Overall 9MFY11 revenue was down 17% year-on-year (y-o-y) due to the depletion of jobs for the construction division and the timing of new launches for the property division. However, earnings before interest and tax (Ebit) margin climbed higher due to contributions from new jobs with better margins. This helped push core net profit up 15.3% y-o-y. Construction Ebit margin improved two percentage points y-o-y to 13%. We expect construction margins to hold steady from this point.
We continue to expect the RM4 billion worth of jobs that WCT has tendered for to start materialising in 2012. Some potential local jobs include the RM7 billion Gemas-Johor Baru double tracking, various large-scale building jobs worth around RM1 billion and private sector projects such the Vale iron ore facility which has yet to kick off in a big way. In the Middle East, prospects for order flows are still positive even though WCT is being more selective. Potential jobs include a building job in Bahrain and a highway project in Oman worth around RM1 billion each.
We think it is just a matter of time before project flows regain momentum as tenders approach the award stage. WCT’s order book visibility is intact. Within our construction coverage, the stock is one of the worst performers, having fallen 25% year-to-date. We believe that its share price has largely priced in the potential negatives, especially concerns over order book visibility. The stock is trading at a 40% discount to RNAV. — CIMB Research, Nov 18
This article appeared in The Edge Financial Daily, November 21, 2011.
Maintain outperform at RM2.40 with revised target price of RM3.20 (from RM3.30): Though we keep our valuation basis of 20% realisable net asset value (RNAV) discount, our target price is trimmed as we update for balance sheet items. The potential revival of project flows in the coming months supports our “outperform” call. WCT remains one of our top construction picks.
Overall 9MFY11 revenue was down 17% year-on-year (y-o-y) due to the depletion of jobs for the construction division and the timing of new launches for the property division. However, earnings before interest and tax (Ebit) margin climbed higher due to contributions from new jobs with better margins. This helped push core net profit up 15.3% y-o-y. Construction Ebit margin improved two percentage points y-o-y to 13%. We expect construction margins to hold steady from this point.
We continue to expect the RM4 billion worth of jobs that WCT has tendered for to start materialising in 2012. Some potential local jobs include the RM7 billion Gemas-Johor Baru double tracking, various large-scale building jobs worth around RM1 billion and private sector projects such the Vale iron ore facility which has yet to kick off in a big way. In the Middle East, prospects for order flows are still positive even though WCT is being more selective. Potential jobs include a building job in Bahrain and a highway project in Oman worth around RM1 billion each.
We think it is just a matter of time before project flows regain momentum as tenders approach the award stage. WCT’s order book visibility is intact. Within our construction coverage, the stock is one of the worst performers, having fallen 25% year-to-date. We believe that its share price has largely priced in the potential negatives, especially concerns over order book visibility. The stock is trading at a 40% discount to RNAV. — CIMB Research, Nov 18
This article appeared in The Edge Financial Daily, November 21, 2011.
