WCT (9679) - WCT Holdings - Weaker by the numbers
Target RM1.69 (Stock Rating: HOLD)
WCT's FY14 core net profit made up 96% of our forecast and 99% of consensus’. The results, which exhibited weakness in operational numbers, were broadly in line. The yoy decline in FY14 core earnings were underpinned by falling property margins due to weak sales in Medini and timing of the recognition of new jobs. We maintain our FY15-16 EPS forecasts as we expect its RM3bn outstanding order book (RM994m secured in 2014) to mitigate the downside risks to property sales. Our target price, pegged to a 40% RNAV discount, rises as we update the balance sheet items. New construction contracts from Qatar remain the wild card. We maintain our Hold rating. Switch to Muhibbah Engineering, our preferred small/mid cap pick.
FY14 broadly in line
FY14 core net profit made up 96% of our forecast and 99% of consensus’. The results were broadly line. WCT’s 4Q14 was weak. Its construction and property development segments performed poorly, with declines in both revenue and margins in FY14. The group achieved RM461m property sales in 2014, lower than its target of c.RM600m, mainly dragged down by weaker sales in Medini, Iskandar. Property EBIT margin fell to 18% in FY14 (vs. 21% in FY13) but this was partially offset by the less volatile construction EBIT margin. The 6.21 sen full-year DPS was below our forecast of 9 sen.
Unchanged tender book mix; very selective
We remain cautiously positive about the group's efforts to re-strategise amid challenges facing its two key divisions. We believe that job wins are more likely in 2H15, with 1H15 construction earnings supported by recent job wins and internal works. WCT continues to focus on securing more subcontract works in Rapid and Tun Razak Exchange (TRX) projects. It is also vying for its maiden package from the MRT 2 project, tenders for which should begin by end-2015.
Property outlook challenging
We believe WCT could be more disadvantaged in light of the weakening property outlook which is affecting commercial and high-rise products more than landed units. This is especially so for its ventures in Medini, Iskandar. A REIT potential should enable WCT to unlock the value of three of its five existing property investment assets, in our view. We will likely get more updates on this plan in its results briefing tomorrow.
Source: CIMB Daybreak - 26 February 2015
Target RM1.69 (Stock Rating: HOLD)
WCT's FY14 core net profit made up 96% of our forecast and 99% of consensus’. The results, which exhibited weakness in operational numbers, were broadly in line. The yoy decline in FY14 core earnings were underpinned by falling property margins due to weak sales in Medini and timing of the recognition of new jobs. We maintain our FY15-16 EPS forecasts as we expect its RM3bn outstanding order book (RM994m secured in 2014) to mitigate the downside risks to property sales. Our target price, pegged to a 40% RNAV discount, rises as we update the balance sheet items. New construction contracts from Qatar remain the wild card. We maintain our Hold rating. Switch to Muhibbah Engineering, our preferred small/mid cap pick.
FY14 broadly in line
FY14 core net profit made up 96% of our forecast and 99% of consensus’. The results were broadly line. WCT’s 4Q14 was weak. Its construction and property development segments performed poorly, with declines in both revenue and margins in FY14. The group achieved RM461m property sales in 2014, lower than its target of c.RM600m, mainly dragged down by weaker sales in Medini, Iskandar. Property EBIT margin fell to 18% in FY14 (vs. 21% in FY13) but this was partially offset by the less volatile construction EBIT margin. The 6.21 sen full-year DPS was below our forecast of 9 sen.
Unchanged tender book mix; very selective
We remain cautiously positive about the group's efforts to re-strategise amid challenges facing its two key divisions. We believe that job wins are more likely in 2H15, with 1H15 construction earnings supported by recent job wins and internal works. WCT continues to focus on securing more subcontract works in Rapid and Tun Razak Exchange (TRX) projects. It is also vying for its maiden package from the MRT 2 project, tenders for which should begin by end-2015.
Property outlook challenging
We believe WCT could be more disadvantaged in light of the weakening property outlook which is affecting commercial and high-rise products more than landed units. This is especially so for its ventures in Medini, Iskandar. A REIT potential should enable WCT to unlock the value of three of its five existing property investment assets, in our view. We will likely get more updates on this plan in its results briefing tomorrow.
Source: CIMB Daybreak - 26 February 2015
