WCT sees construction to remain core earnings contributor

TheEdge Tue, Mar 05, 2019 10:52am - 5 years View Original


WCT Holdings Bhd
(March 4, 82 sen)
Maintain sell with an unchanged target price (TP) of 68 sen:
We attended the company’s fourth quarter ended Dec 31, 2018 (4QFY18) results briefing (on Sunday). Among the key takeaways from the briefing was that construction would remain its core earnings contributor.

 
WCT secured RM2.7 billion of new construction jobs in 2018. As of December 2018, it had an outstanding order book of RM6.3 billion. This would provide earnings visibility to the construction division for the next three years.

The management, supported by strong outstanding order book, will now focus on job execution. For its 2019 financial year (FY19), it has set a lower order book replenishment target of RM1 billion, concentrating more on building jobs such as development at Tun Razak Exchange and Pavilion Damansara.

Currently it has a tender book of over RM4.3 billion.

Separately, the progress at Section 3 of West Coast Expressway is still facing delay as part of the construction site, which is affected by land acquisition issues, has yet to be handed over to the company for construction.

Property development could be an earnings drag for WCT.  The property division recorded sales of RM146 million for FY18 versus RM305 million achieved for FY17. The management targets property sales of RM300 million for FY19, with RM200 million coming from the sales of completed properties and RM100 million from a new launch project.

We think that this is a tall order given the current challenging market condition. Furthermore, out of its RM950 million of completed stock properties, about 83% of the stocks are serviced apartments and condominiums, which are generally not the preferred types of property currently.  For FY19, WCT targets to launch Paradigm Residences in Johor Baru in the third quarter.  The group targets to list its real estate investment trust (REIT) in the second half of 2019, following the out-of-court settlement of legal suit filed by AEON on BBT Mall Klang.

The REIT comprises Paradigm Mall PJ, BBT Mall Klang, Premiere Hotel, New World Hotel and Ascent Officer Tower with an aggregate asset value of up to RM2 billion. The listing is expected to reduce the group’s debts by approximately RM300 million.

We maintain a “sell” recommendation on the stock with an unchanged TP of 68 sen, based on 0.3 times FY19 price-to-book ratio, a 10-year trough valuation for WCT. — TA Securities, March 4

 

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