WCT HOLDINGS BHD
By Alliance DBS Research
Hold
Target price: RM2.10
WCT Holdings Bhd has secured a RM651mil contract from Boustead Ikano Sdn Bhd to undertake main contract works for the Cochrane retail mall in Kuala Lumpur.
Alliance DBS Research said this was the much needed boost by WCT Holdings, as this was its second win for 2014, bringing year-to-date wins to RM993mil and lifting its external outstanding orderbook by 35% to RM2.5bil.
“We expect pre-tax margins to be unexciting, given the competitive nature of the tender.
“Nonetheless, WCT’s superior cost-saving measures and depreciated machinery may result in some margin enhancement,” said the research house, adding that works would include two levels of basement car parks, four levels of retail, food and beverage and entertainment, and four levels of elevated car parks.
It noted that assuming margins of 6%, pre-tax profit to be realised over the construction period was about RM38mil or RM19mil per annum over financial years 2015 (FY15) and 2016.
“We make no changes to our forecast as the contract win is within our new order win assumptions, which now assumes a balance of RM450mil for FY14 forecast,” it said.
Alliance DBS added that WCT had not wavered from its RM2bil new wins assumptions for FY14 forecast (balance RM1bil now), which the research house felt was too optimistic.
Therefore, it recommended its “hold” call and target price of RM2.30 (sum-of-parts based), stating although this was a positive win for WCT, it may not be sufficient to excite the market given it was largely within market expectations.
“Our preference is for the larger contractors like Gamuda and IJM which have flagship projects such as the Mass Rapid Transit and West Coast Expressway providing higher earnings visibility with superior margins,” it added.
PERDANA PETROLEUM BHD
By Public Investment Bank
Outperform
Target price: RM2.07
PUBLIC Investment Bank (Public IB) has lauded Perdana Petroleum Bhd for sealing an agreement with Hauston Ltd for the disposal of Perdana Superior, a five-year old 300-men accommodation work barge (AWB) for RM93.5mil.
It said the disposal was part of the group’s fleet renewal programme, and concurrently benefited the buyer by way of obtaining a vessel for a charter contract in hand.
Public IB believed that Perdana Petroleum had disposed of the asset for value comparable with its current market rate.
“A new vessel of this specification with a 70T pedestal crane today would cost about US$27mil to US$28mil.
“For Hauston, however, even if they placed an order for a new-build vessel, it takes about 20 to 24 months to construct and the group furthermore will benefit from cost savings of about RM2mil from the need to dry dock Perdana Superior (dry docking is done five years after delivery),” it said.
It added that the original cost of investment for Perdana Superior was RM108mil with a net book value of RM92mil as at Oct 31.
Public IB said it maintained its “outperform” call, with a revised target price of RM2.07 in light of the revision of asset schedules coupled with weaker industry sentiment.
“This is based on our discounted cashflow valuation using a 12.8% weighted average cost of capital to reflect a 20-year life expectancy of the vessels. Perdana Petroleum’s performance is reaffirmed by its earnings visibility from its RM1.2bil order book up to 2019 of long-term contracts.
“We are positive on the next kicker for Perdana Petroleum that is their orders of two 500-men AWBs (with an option for another two), scheduled to be delivered in the first and second quarters of FY16 respectively,” it continued.
It added that the AWBs, which were limited in supply, should command stable and higher charter rates to enhance earnings, going forward.
IGB REAL ESTATE INVESTMENT TRUST
By Affin Hwang
Add (Downgrade)
Target price: RM1.34
IGB Real Estate Investment Trust (IGB Reit) recorded a financial year ended Sept 30, 2014 (FY14) net profit of RM176.4mil (+14.6% year-on-year) and accounted for 81% of Affin Hwang’s estimate of RM217.6mil and 80% of consensus estimate.
Affin Hwang said IGB Reit’s gross rental income grew by 4.5% year-on-year, driven by tenancy renewals.
“We downgrade our ‘buy’ rating to ‘add’ as upside potential has narrowed. Our dividends discount model-derived 12-month target price of RM1.34 remains unchanged, premised on an 8.2% cost of equity, 6% equity risk premium and a 3% terminal growth rate.
“IGB Reit’s tenancy structure has hedged against the risk of recession, and its asset portfolio should continue to generate a sustainable stream of distribution per unit growth,” it said.
It said it was optimistic on IGB Reit’s outlook based on strong occupancy rates, long tenant waiting list and strong visitor and retailer attraction as well as potential asset injection of Southkey Megamall and 18@Medini after FY16.
http://www.thestar.com.my
