Lower margins for WCT Holdings

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WCT Holdings Bhd
(Nov 25, RM1.83)
Maintain outperform with target price of RM2.50:
For the third quarter of financial year 2014 ending December (3QFY14), WCT Holdings Bhd netted a disappointing net profit of RM25.8 million (-35.5% quarter-on-quarter [q-o-q], -37.5% year-on-year [y-o-y]), which was below our and consensus’ expectations. Year-to-date (YTD), the group’s net profit of RM100.2 million (-29.0% y-o-y) accounted to only about 60% of our and 61% of consensus estimates.

The earnings drag was primarily caused by lower margins from the group’s construction business, partly due to additional costs incurred for the completion of the New Doha International Airport project. The RM994 million job replenishment was within our expectations after the building job secured recently. We have assumed about RM1 billion in new jobs for FY14, and thus far the group has clinched two projects — the RM342 million infrastructure project in Pengerang, Johor, and RM625 million building project for IKEA, located in Jalan Cochrane, Kuala Lumpur. Other projects eyed are Warisan Merdeka in the capital, civil works at Kwasa Damansara land, West Coast Expressway and Klang Valley Mass Rapid Transit (MRT) 2.

The sales target is to cut to RM617 million from RM1.2 billion. As indicated in our earlier report, WCT’s sales target for FY14 of RM1.2 billion was considered stretched but the new sales target is worse than expected.  WCT has toned down the targeted new launches to RM1.85 billion from RM2.4 billion. Unbilled sales stood at RM589 million (from 2Q: RM537 million). As for land bank, WCT has about 307.5ha of undeveloped land with a projected gross development value of RM17.6 billion to be developed in the next 10 to 15 years.

We maintain “outperform” but lower our sum-of-parts-derived target price to RM2.50 after revising our earnings downwards by 13.6% to 16.6% to factor in the lower margin and weaker property sales.  — Public Investment Bank, Nov 25

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This article first appeared in The Edge Financial Daily, on November 26, 2014.