This article first appeared in The Edge Financial Daily on November 28, 2018
WCT Holdings Bhd
(Nov 27, 78.5 sen)
Maintain buy with an adjusted target price (TP) of RM1.05: The cumulative first nine months of financial year 2018 (9MFY18) earnings lagged our expectations, accounting for 66.6% of the yearly estimate, but within consensus expectations at 75.7%. Notably, total revenue dropped by 17.8% for 3QFY18, attributable to a slowdown in billings from local and overseas infrastructure projects, coupled with lower sales volumes for the property segment.
Cumulative results for 9MFY18 were largely contributed by 6MFY18 income. We recall that total revenue for 6MFY18 grew strongly by +41.4% year-on-year (y-o-y), which contributed about RM82.1 million of profit after tax and minority interests (Patmi). Accordingly, the 6MFY18 aggregate contributed about 75.8% of 9MFY18 Patmi.
The engineering and construction segment (E&C) remained as the backbone of the group’s earnings. Notably, E&C represented approximately 80% of the group’s revenue, underpinned by its strong order book. Despite the slower recognition of work progress for 3QFY18, the cumulative 9MFY18 earnings have been encouraging, recording a +21% y-o-y growth in operating profit. This was on the back of stronger progress billing for 2QFY18, owing to local and overseas infrastructure projects.
Revenue for the property segment dipped 35.2% y-o-y for 9MFY18, steered by a lower sales volume registered for the period. We noted that the drop was primarily due to a low take-up rate of stock units in the Klang Valley and Medini Iskandar region, coupled with the absence of new launches during the period. Despite the slowdown, cumulative operating profit was recorded at 17% y-o-y higher, attributable to land sales exercises.
Given the earnings deviation, we believe the adjustment to our earnings estimate is necessary while taking into account the current progress of construction works and low take-up rates of unsold property units. We have revised down our earnings estimate by 13.9% for FY18. Our FY19 forecasts are maintained at this juncture to reflect our stable outlook for earnings recognition. — MIDF Research, Nov 27