Friday 17 August 2012

WCT - All Intact


We attended WCT’s analysts briefing yesterday following its 2QFY12 results release. All in, we came away feeling largely positive as management highlighted the possibility of securing more jobs for its construction division going forward. Its property segment, meanwhile, remains sturdy, having registered RM376m of sales as of 2QFY12, while the proposed integrated complex at KLIA2 will be completed by year-end, with commercial operations likely to start by 2QFY13. Hence, we maintain our BUY call at a revised FV of RM3.36, based on an unchanged 12x FY13 PE.
Paradigm Mall. The briefing was hosted at WCT’s Paradigm Mall, of which 94% of the 680k sq ft net lettable area has been leased out. The mall clocks in shoppers traffic at a decent 25k/day during weekday and 60k/day during weekend. To further entice visitors, WCT would focus on A&P activities for the remainder of the year, with some one-off expenses likely to be incurred. Come FY13, we estimate that the mall would likely contribute RM12m p.a. to WCT’s pretax earnings, mainly from rental income.
Minor blip in Qatar operations. Recall that WCT’s 1HFY12 earnings came in below our expectations due to weaker-than-expected showing from its construction segment. Management conceded that the division suffered a minor blip in 2QFY12 due to a slight hiccup in its existing operations in Qatar, which has been progressing marginally slower than expected. Nonetheless, we see this as a minor issue and progress should gradually normalize going forward, with management assuring that works in Qatar would be completed by October 2013.
Oman job in bag. Coincidently, WCT announced yesterday that it has secured a RM1.0bn job to construct the Batinah Expressway in Oman through its 80:20 JV with Oman Road Engineering. With that, it has secured some RM2.1bn worth of new jobs YTD vis-à-vis our previous assumption of RM1.5bn for the year. Its outstanding orderbook stands at a sturdy RM3.7bn currently, of which 40% is from its ongoing works in Qatar.
Mega contracts upcoming. WCT has tendered for some RM3.8bn worth of jobs, comprising RM1.3bn worth of civil works in Pengerang, foundation works for the Tun Razak Exchange amounting to RM1bn, as well as a few hospital projects in Sabah. It is also looking at potential highway jobs in the UAE as well as Qatar. With the RM1.0bn Oman job now in its bag, we assume there will be no more job winnings for the year. We maintain our forecast of orderbook replenishments of RM1.5bn p.a. for FY13 and FY14.
Decent property sales. The group registered 1HFY12 property sales of RM376m, with unbilled sales at RM563m. This is in line with our expectation. New launches over the next 12 months would likely include its 1Medini project in Iskandar Malaysia, which has an outstanding GDV of approx RM500m, commercial and residential units in Bandar Parklands and Bandar Bukit Tinggi as well as a potential office tower in its Paradigm development. For FY13 and FY14, we are pegging our sales assumption at RM400m p.a. vis-à-vis FY12’s RM600m in view of the softening sentiment in real estate market.
KLIA2 Integrated Complex to be ready on time. Construction progress of the proposed KLIA2 Integrated Complex remains largely on track, with works likely to be completed by end of this year. Some 27% of the tenant space of 350k sq ft has already been taken up and management targets to hit 70% tenancy rate by year-end. To address concerns over potential delay in the completion of the main airport terminal, which would then cause delays in the commencement of the complex’s commercial operations, management guided that compensation schemes are already in place under the concession agreement WCT signed with Malaysia Airports Holdings. We expect contribution from this complex to start in 2QFY13.
Forecasts revised. We revisited our model to incorporate the RM1.0bn new highway job in Oman. With that, we are bumping up our FY12-FY14 EPS forecasts by 1.4%-10.9%, factoring this new stream of contribution under its construction division.
BUY. Overall, we came away from the meeting feeling largely positive on WCT. We continue to like the company’s three-pronged approach to expand its property development, investment and management activities by leveraging on its engineering and construction expertise. Hence, we are maintaining our BUY call with our FV upgraded to RM3.36 based on an unchanged 12x FY13 PE following our earnings revision.
Source: OSK

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