Tun Razak Exchange kicks off

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Maintain buy at RM2.34 with a target price of RM2.75: WCT has clinched a job worth RM169 million from 1Malaysia Development Bhd (1MDB) for the foundation works of the Tun Razak Exchange (TRX), replenishing its outstanding order book by 5% to RM3.47 billion. However, we maintain our earnings forecasts, as we have imputed RM2 billion worth of new jobs into our 2013 financial year ending December (FY13) estimates. We reiterate our “buy” call and target price of RM2.75 (13 times FY13 price-earnings ratio plus 20 sen for the klia2 integrated complex [klia2-IC] concession). Valuations are decent, at just under 12 times forward earnings.The RM169 million contract awarded by 1MDB Real Estate Sdn Bhd on April 12 consists of earthworks, retaining walls and foundation works for Phase 1 of TRX. The scope of works comprises site clearance, earthworks and excavation, construction of a secant pile wall, grouting works, bored pile and basement rafts and other associated works. The contract duration is expected to be 26 months, stretching to mid-2015.The job win lifts WCT’s outstanding order book to RM3.47 billion (+5%) from RM3.3 billion. This is the second job WCT has clinched this year after the RM315 million contract for the construction of office buildings in Putrajaya in March. Year-to-date, WCT has secured jobs worth RM584 million (including the RM100 million for klia2-IC). We expect WCT to clinch more jobs going forward, including land civil works worth some RM1 billion in Kwasa Damansara. It is also looking to participate in the West Coast Expressway and new Klang Valley highway as a subcontractor.Assuming an 8% net margin, we estimate this new contract will contribute RM14 million in net profit (earnings per share of 1.3 sen) over the 26-month work period, through to FY15. However, we maintain our earnings forecasts as we have imputed job wins of RM2 billion for the current year. — Maybank IB Research, April 17This article first appeared in The Edge Financial Daily, on April 18, 2013.