WCT Berhad - OUTPERFORM - 08 June 2012

News   WCT announced that it had secured a contract worth RM72.8m from Vale Malaysia Mineral Sdn Bhd (VMM). The scope of work includes piling, foundation of conveyors, sampling towers, pipe and cable racks and pump house, storm water pond civil works and drainage work at VMM’s Minerals Project in Teluk Rubiah, Perak. 

  

Comments   We view this news as a pleasant surprise. Management has guided that there will be more potential contracts coming from VMM in the near term. The works will be completed in 18 months. 

 The newly secured contract value is within our RM1.0b order book replenishment expectation for FY12. To date, WCT has secured three Malaysia based contracts worth RM700m in FY12. 

 To recap, in July 2011, WCT secured the first contract from VMM worth RM115m for the site earthworks. The outstanding works for the contract is currently at about RM80m and is slated for completion by April 2013.   

 We expect WCT will be able to chalk up about a 12% operating margin from this project, which would be in line with its track record. 

 Its current order book stands at RM2.4b, of which 53% are driven by Malaysia-based projects. 

  

Outlook  We believe that WCT will be able to meet our RM1.0b order book assumption for FY12. With the new contract secured, we expect WCT to secure at least another RM300m worth of contract(s) in the remaining months of FY12. 

 We believe that the foundation contract for KLFID will be awarded in the near term. The expected contract value is around RM1.5b to RM1.7b. We understand that WCT was one of the bidders which had the available resources to start the foundation work immediately. This is an advantage for WCT to win the contract.

 We also expect that WCT will be able to secure some more projects in Middle East countries i.e. in Qatar and Abu Dhabi.   

  

Forecast  No major change to our forecasts as the contract value is within our expectation.

  

Rating Maintain OUTPERFORM

 We are maintaining our OUTPERFORM recommendation for WCT with its attractive upside (+63%) from the current share price. 

  

Valuation   No change in our Target Price of RM3.93, which is based on SOP valuation.

  

Risks  Further delays in ETP and Middle East-based projects. 

Source: Kenanga