This article first appeared in The Edge Financial Daily, on November 16, 2015.

WCT Holdings Bhd
(Nov 13, RM1.34)
Maintain buy with a higher fair value (FV) price of RM1.54: The increase in our FV price is to account for another contract that WCT Holdings has successfully secured from the Petroliam Nasional Bhd (Petronas) group in Johor.

WCT announced on Bursa Malaysia last Thursday evening that it had received a letter of award from PRPC Utilities and Facilities Sdn Bhd for the utilities, interconnecting and off-site (UIO) facilities under Petronas’ Refinery and  Petrochemical Integrated Development (Rapid) project in Pengerang, Johor.

This is the second such UIO package that WCT has won within a month. The current package requires WCT to deliver engineering, procurement, construction and commissioningworks for substations (275KV, 33KV and 11KV), field auxiliary rooms, an operator shelter building, and a local control building.

The contract value is worth RM316 million over the duration of 33 months.

Earlier last month, WCT won another UIO package civil and infrastructure works at the Petchem Interconnecting and 6,900 Area and Petchem Interconnecting South Area. The contract value is RM267 million (31 months).

By extension, the total value of both UIO contracts is worth RM583 million. Besides these, WCT has another ongoing infrastructure job worth RM342 million that it secured from Petronas for the same project.

With this new contract win, WCT’s new contract flows have surged to RM2.4 biilion or roughly 2.4 times more than the whole of last year. We have also assumed pre-tax margins of 7% for this job.

While WCT has hit a purple patch with its strong resurgence in order book top-ups, we remain concerned with the group’s rising cash flow commitments from its property investments.

Excluding the proposed OUG mall, in-house construction of its property investments for the second quarter of 2015 is already worth RM585 million. To be sure, WCT’s net gearing stood at 81% as at June 2015.

Furthermore, the spectre of rising Malaysian Government Securities’ yields makes WCT’s prospects of monetising the value of its property investments a tad more challenging moving into 2016. — AmResearch, Nov 13