WCT - Widening its highway expertise Buy

- We maintain our BUY recommendation on WCT with an unchanged fair value of RM3.05/share on a 15% discount to its sum-of-parts value. 

- WCT has announced on Bursa Malaysia that it has claimed a highway contract from the UEMB-MRCB JV. The contract is for the proposed fourth lane widening between Nilai (KM280.4) and Seremban (KM258.5).

- The contract value is estimated at RM391mil, and would include a provisional sum of RM10mil and prime cost sum of RM216mil. The entire works programme is scheduled to be completed in December 2014.

- We estimate this new contract will lift WCT’s total new wins secured for FY12F to ~RM1.1bil, just RM100mil short of our RM1.2bil target for the year. We make no changes to our earnings forecast, as it already forms part of our new contract assumptions.

- The PLUS highway widening job is one of a few potential contracts that we had highlighted for WCT moving into 2H12. 

- This makes up for our slight disappointment whereby WCT had missed out on the latest station works under the Sg.Buloh-Kajang (SBK) MRT project announced yesterday, where the group had put in two bids.

- WCT continues to be pushing for more jobs. We believe part of the RM1bil bond programme that the group had proposed earlier this week could be used to push for more future contract opportunities (including Private-Finance Initiative of PFI projects) or landbanking deals.

 

- Beyond this, future job opportunities include:- (i) West Coast Expressway; (ii) additional station works for the Sg.Buloh-Kajang MRT line; (iii) infrastructure opportunities within Iskandar Johor; (iv) Vale iron ore facility; (vii) KL International Financial District (KLIFD); (viii) Gemas-JB double tracking; (viii) Penang Traffic Alleviation plan; and (ix) building jobs within the KL City Centre. Abroad, it has lined up several bids – including two packages of the Oman Expressways worth ~RM1bil.

- Furthermore, the successful launch of Paradigm may signify a re-profiling of WCT’s earnings base to include recurring income, which accounted for ~15% of group operating profits in FY11. 

- WCT remains one of our two top large cap picks within the construction sector. Valuations are undemanding at FY12F-14F PEs of 10x-13x. 

Source: AmeSecurities