WCT - Lands RM315m Putrajaya Building Job

We maintain our Sell call and fair value of RM1.76 following the company’s latest contract win, i.e. a RM315m Putrajaya building job, that has already been imputed in our forecasts by virtue of our assumption of RM1.5bn new contract wins in FY13. While we expect better appetite for construction stocks post the 13th General Election, we believe WCT’s valuations have run ahead of its fundamentals at the current price.

First key job in FY13. WCT has been awarded by Putrajaya Holding a RM315m contract for the construction of “commercial office buildings” in Precinct 2, Putrajaya. Recall, WCT hinted during an analysts’ briefing last month that it was “very close to securing a Putrajaya building job worth about RM300m” (see our Briefing Note on WCT dated 27 Feb 2013). This is the very first key contract WCT has secured in FY13, boosting its outstanding construction orderbook by 9% to RM4bn (see Figure 1) from RM3.7bn. Assuming an EBIT margin of 5-7%, the contract will fetch RM15.8-22.1m EBIT over a 32-month contract period. We are positive on the latest development.

Forecasts. Maintained as we have already assumed WCT to secure RM1.5bn worth of new contracts in FY13.

Risks to our view. These include: (1) New construction contracts secured in FY12/13-14 to surpass our target of RM1.5bn p. a.; (2) Lower-than-expected input costs; and (3) Good execution of overseas jobs.

 Maintain SELL. We expect construction stocks to trend downwards during the early part of 2013 as the 13th General Election deadline draws closer. After the 13th GE when the dust settles, we believe investors will refocus on sector fundamentals that are reasonably attractive underpinned by a construction upcycle. However, at the current price, we believe WCT’s valuations have run ahead of its fundamentals. We value WCT at RM1.76 based on 13x fully-diluted FY13 EPS of 13.5sen, in line with our benchmark 1-year forward target PER of 8-13x for the construction sector.

Source: RHB