WCT Bhd
(Jan 9, RM2.23)
Maintain market perform at RM2.23 with revised fair value of RM1.97 (from RM2.08): WCT was unable to meet its new construction order book guidance of RM2 billion for FY11 ended December. It only managed to secure RM187 million. The key culprits were its unsuccessful bids for Yas Mall in Abu Dhabi, Four Seasons Hotel in Bahrain, Madinah Airport in Saudi Arabia, airport extension in Brunei and “Package B” of the LRT line extension project.
WCT has yet to issue guidance on its FY12 new construction order book. However, it is certainly putting a lot of faith in its RM4 billion outstanding tender book at present, with the key contracts being two highway packages in Oman as well as building jobs in Malaysia. Over the short to medium term, WCT is also eyeing infrastructure and building jobs from Vale SA, Putrajaya, Iskandar Malaysia, Permodalan Nasional Bhd, the Kuala Lumpur International Financial District (KLIFD), Langat 2 water treatment plant, Gemas-Johor Baru double tracking, West Coast Expressway and Penang traffic alleviation. On a less positive note, WCT is staring at the prospect of not being involved at all in the RM20 billion Sungai Buloh-Kajang (SBK) line of the Klang Valley MRT project. In our earnings forecasts, we assume WCT will secure RM1.5 billion worth of new jobs per annum in FY12/FY13.
We are cutting FY12/FY13 net profit forecasts by 7% to 12%, having reflected an actual new construction order book secured of only RM187 million in FY11 (vis-à-vis our previous assumption of RM1.5 billion), partially mitigated by an upward revision in property profit.
Risks to our view include: (i) new contracts secured in FY12/FY13 coming in below our target of RM1.5 billion per year; and (ii) escalation in input costs.
We have turned less enthusiastic on construction stocks as we believe their share price performance is likely to be muted over the next three to six months as: (i) investor confidence and comfort level that the Klang Valley MRT project will start work soon are being chipped away by further delays in the rollout of certain long overdue large-scale projects; (ii) even if the Klang Valley MRT project starts work as scheduled, initial progress is likely to be painfully slow due to bureaucratic hurdles, which means realistically that earnings impact from the Klang Valley MRT may be a few quarters, or even a year or two away; and (iii) there is generally a lack of credible new large-scale projects in the pipeline. Indicative fair value for WCT is reduced by 5% from RM2.08 to RM1.97. — RHB Research, Jan 9
This article appeared in The Edge Financial Daily, January 10, 2012.
(Jan 9, RM2.23)
Maintain market perform at RM2.23 with revised fair value of RM1.97 (from RM2.08): WCT was unable to meet its new construction order book guidance of RM2 billion for FY11 ended December. It only managed to secure RM187 million. The key culprits were its unsuccessful bids for Yas Mall in Abu Dhabi, Four Seasons Hotel in Bahrain, Madinah Airport in Saudi Arabia, airport extension in Brunei and “Package B” of the LRT line extension project.
WCT has yet to issue guidance on its FY12 new construction order book. However, it is certainly putting a lot of faith in its RM4 billion outstanding tender book at present, with the key contracts being two highway packages in Oman as well as building jobs in Malaysia. Over the short to medium term, WCT is also eyeing infrastructure and building jobs from Vale SA, Putrajaya, Iskandar Malaysia, Permodalan Nasional Bhd, the Kuala Lumpur International Financial District (KLIFD), Langat 2 water treatment plant, Gemas-Johor Baru double tracking, West Coast Expressway and Penang traffic alleviation. On a less positive note, WCT is staring at the prospect of not being involved at all in the RM20 billion Sungai Buloh-Kajang (SBK) line of the Klang Valley MRT project. In our earnings forecasts, we assume WCT will secure RM1.5 billion worth of new jobs per annum in FY12/FY13.
We are cutting FY12/FY13 net profit forecasts by 7% to 12%, having reflected an actual new construction order book secured of only RM187 million in FY11 (vis-à-vis our previous assumption of RM1.5 billion), partially mitigated by an upward revision in property profit.
Risks to our view include: (i) new contracts secured in FY12/FY13 coming in below our target of RM1.5 billion per year; and (ii) escalation in input costs.
We have turned less enthusiastic on construction stocks as we believe their share price performance is likely to be muted over the next three to six months as: (i) investor confidence and comfort level that the Klang Valley MRT project will start work soon are being chipped away by further delays in the rollout of certain long overdue large-scale projects; (ii) even if the Klang Valley MRT project starts work as scheduled, initial progress is likely to be painfully slow due to bureaucratic hurdles, which means realistically that earnings impact from the Klang Valley MRT may be a few quarters, or even a year or two away; and (iii) there is generally a lack of credible new large-scale projects in the pipeline. Indicative fair value for WCT is reduced by 5% from RM2.08 to RM1.97. — RHB Research, Jan 9
This article appeared in The Edge Financial Daily, January 10, 2012.
