We are maintaining our OUTPERFORM recommendation on WCT with
an unchanged TP of RM3.09 based on SOP valuation. WCT is our Top Pick for the construction
sector in 4Q12. This is banking on its potential contract to be secured from
TRX and RAPID (“RAPID”) earthworks, which would have a cumulative value c. RM2.0b.
This is in line with the recent Budget 2013 announcement of the initiative to
draw developers and investors to participate in developing these two projects.
We see the implementation of these projects as imminent despite the risk of
uncertainties in terms of the upcoming election outcome, which will overweigh
on the construction sector in the near term. We, however, do not discount that
the competition will be stiff as all
construction players are likely to be eyeing the projects as well.
Nonetheless, WCT has ample capacity at c.RM2.0b at this juncture and this will be
a key advantage to secure the contracts.
Construction contract
flows limited. There is a huge risk
of uncertainties in the construction sector at this juncture due to the “moving
goal” post of the next general election date. In addition, sector is likely to have
a greater risk premium closer to the election date due to the potential change
in the political scenario and the potential
delays in awarding contracts. As expected, there were no new contracts
announced in the recent Budget 2013 announcement and. That said, we believe that the contract awards likely to
take place post-election will be, in
particular, Gemas-JB EDTP, WCE Highway, High-Speed Train and Langat 2. We note also
that there were two main contracts mentioned in the Budget, i.e. TRX and
Petronas RAPID.
Ample capacity to
execute RM2.0b contract. To date,
WCT’s current order book stands at RM3.8b and these are projects that were in
the 2011 bidding list. The management is still also actively looking to
materialise the contracts on its current tender book (c. RM6b). Based on
numerous reports, the cumulative value of TRX and RAPID’s earthworks packages
could reach up to more than RM2.0b. This is within WCT’s current capacity,
which is able to execute up to RM2.0b worth of earthwork projects at this time.
We see the TRX contract as imminent among the two projects mentioned above as
the tender had already been closed back four months ago. On RAPID, we understand
that Petronas is satisfied with WCT’s past track record in earthwork projects
and hence based on merit, it stands a high change to secure the contract.
New Middle East
contracts to gain traction. In
addition to local contracts, WCT is also eyeing to secure more
infrastructure-based projects i.e. highway projects in Middle East,
particularly in Oman and Qatar. To recap,
in August 2012, WCT secured the RM1.0b Oman-Batinah Expressway (Package 2)
project and the management is also looking at other Highway projects in Qatar
and is also considering Package 1 of Oman-Batinah Expressway. We believe that
these projects will be another key catalyst for WCT if they materialise as its
local contract flows are slowing down.
Maintain OUTPERFORM
with unchanged TP at RM3.09 based on SOP valuation. We are keeping our
forecasts unchanged at this juncture as we are not changing our existing
contract assumptions for FY12E earnings.
However, should there be any new contracts be secured in the remaining months
of 2012, it will contribute to the bottom line starting from FY13 onwards.
Source: Kenanga
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