Pushing for a recovery post-1QFY22
? We came away from WCT’s post-1Q22 results briefing slightly upbeat on the
group’s chances of repositioning itself for new tenders starting 2Q22F.
? The property development division may still be dragged by lower margin
inventory sales, but this could be mitigated by land sale profits of c.RM50m.
? Recovery in retail malls could still outpace hotel’s still low occupancy rates.
TP lowered to RM0.63 but maintain Add rating on attractive P/BV valuation.
Maintaining its recovery path post-1QFY22 performance
There were mixed takeaways from WCT’s post-1QFY22 results briefing. On a positive
note, the group guided for a targeted c.RM300m in incoming land sale proceeds which
would translate to c.RM50m in land sale profits. This should help mitigate the guided
marginal net loss for the property development division (lower-margin inventory sales and
holding cost for undeveloped lands). As for the construction division, billings and earnings
have been on an upward trajectory since 1Q22. The 5% construction EBIT margin in 1Q22
should be sustainable; higher building material cost since end-CY21 remains manageable
over the next 12 months. The group expects the recovery path in FY22F to remain intact
and anticipates a better operating environment for the construction and property
investment divisions. For property development, it targets RM2.8bn worth of new launches
in FY22F and maintains its RM1bn property sales target (FY21 property sales: RM525m).
MRT 3 tender rounds heating up – targeting civil works packages
MRT Corp has opened tenders for three civil works packages for the RM31bn MRT 3
project. The packages are not of equal value, length and scope. Two of the three packages
are earmarked for local contractors/consortium/JV only and include varying distances of
underground tunneling scope for each. The third package (with underground tunnelling
scope) can be tendered with a foreign contractor/partner (with foreign equity stake not
exceeding 49%). Based on preliminary guidance, WCT will be positioning for one of three
tender packages (potential value of RM3bn-9bn each, based on industry checks) once it
finalises its potential JV partners. Each of the MRT 3 packages comes with a private
finance scheme/proposal for the first two years of construction prior to reverting to
government funding and a compulsory participation of a bumiputera contractor/partner.
Trading angle on better infra landscape; Retain Add with lower TP
We maintain FY22-24F EPS. The group has largely completed its overseas contracts and
will focus on contract bids domestically. Outstanding order book of RM4.4bn provides
decent earnings visibility. Our Add call remains predicated on WCT’s attractive CY22F
P/BV multiple of 0.2x and could offer potential trading opportunities amid the improving
construction contract landscape. Our TP remains pegged to a 50% discount to RNAV but
is lowered slightly to RM0.63 on housekeeping and updates to balance sheet items.
Potential re-rating catalysts: new contract wins. Key downside risk: weaker earnings.