WCT Berhad - OUTPERFORM - 27 June 2012

We are maintaining our OUTPERFORM recommendation on WCT with an unchanged Target Price of RM3.92 based  on SOP valuation. WCT is our Top Pick for the construction sector in 3Q12 and we expect it will be able to meet our RM1.0b mark order book replenishment for FY12. To date, WCT has secured three projects with a cumulative value of c. RM700m. In 3Q12, we expect WCT to secure some other projects like KLFID foundation work, PLUS highway and Oman Expressway. Its order book now stands at RM2.4b, which could last it for another two to three years. Its tender book now stands at RM5.5b and we expect WCT to materialise 25% of the tenders by end of FY12. For now, we are keeping our RM1.0b order book assumption unchanged at this juncture. Based on the contracts received thus far, WCT just needs to secure another RM300m worth of contracts, representing 30% to our assumption, in FY12 to meet our forecast. 

On the verge of meeting RM1.0b order book mark. To date, WCT is short of RM300m from our order book replenishment assumption for FY12. With the potential projects lining up like KLFID (RM1.2b), PLUS highway (RM500m to RM1.0b) and Oman expressway (RM1.2b, WCT has a 80% stake in its Oman subsidiary), we are confident that WCT will be able to meet our target for FY12. The combined value of these projects (RM2.9b) is definitely higher than our order book replenishment assumption for FY12.    

Stable income from property investment division.  The newly completed Paradigm Mall has got off to a good start with the average visitor traffic per day at 300,000 on weekdays and doubles  of that for the weekend. The total net lettable area (NLA) stood at 680,000 sqf with an occupancy rate of 92%.  Going forward, FY13 will be an exciting year for WCT following the launching of its third property investment in KLIA 2 i.e. Integrated Complex (IC). With the existing LCCT passenger traffic of c. 15m per annum, this bodes well for the IC income in the near future.  

Tender book stands at RM5.5b. The current tender book now stands at RM5.5b with RM2.8b being overseas tenders, particularly in the Middle East countries (Oman and UAE). Some of the local projects which are expected to be secured in the near term are KLFID and PLUS Expressway 4^th  lane widening. We understand that KLFID foundation work could be worth more than RM1.0b and the PLUS contract at RM1.0b as well.  To recap, PLUS previously announced in 2009 that it will spend RM1.0b in CAPEX for the lane widening project and this will be separated into two packages at about RM500m each. We believe that one of the packages will be awarded in the near term. In the Middle East, WCT is expected to secure the Oman Expressway project, which could be worth about RM1.2b.

 

We are maintaining our OUTPERFORM recommendation on WCT with unchanged TP at RM3.92 based on SOP valuation. We believe that 3Q12 will be an exciting period for WCT as we  expect a few more contracts to be secured during the period. WCT is our top pick for the construction sector in 3Q12.   

Source: Kenanga