WCT Holdings Bhd (July 27, RM1.59)
Maintain market perform with an unchanged target price (TP) RM1.58: WCT Holdings Bhd has announced along with its joint venture (JV) partner KKB Engineering Bhd that they had bagged RM1.29 billion worth of works for the Pan Borneo Highway project. We are neutral on the contract award as it is part of our financial year ending Dec 31, 2016 (FY16) order book replenishment target of RM2.5 billion with no fresh impact on our FY17 to FY18 estimated earnings.
This contract award of RM1.29 billion for the upgrading works for Pan-Borneo Highway marks the second job win for WCT. To recap, it bagged RM133.9 million worth of jobs in March 2016 for the proposed redevelopment works of the existing police quarters in Taman Keramat, Selangor. Based on WCT’s equity stake of 30%, and an assumed pre-tax margin of 8%, we expect the contract to contribute approximately RM5.5 million to its bottom line per annum, which has already been factored in our FY17 to FY18 estimated earnings.
After this Pan-Borneo Highway contract award, we are expecting WCT to be eyeing the upcoming Sungai Besi-Ulu Klang Elevated Expressway (Suke) and the Damansara-Shah Alam Elevated Expressway (Dash) work packages closely, which we believe is worth approximately RM350 million to RM400 million per package. Currently, WCT has an external outstanding order book of RM4.1 billion, with an earnings visibility of two to three years. In terms of job prospects, the management is maintaining a replenishment target at RM2 billion underpinned by projects such as mass rapid transit 2, light rail transit 3, Kwasa Damansara, Tun Razak Exchange, refinery and petrochemical integrated development, Suke and Dash. However, we expect more job awards to flow in closer to the fourth quarter ending Dec 31, 2016.
We continue to reiterate our “market perform” call on WCT with an unchanged TP of RM1.58. Our main concern for WCT is still the possibility of repeated cash calls to address its working capital purposes, particularly when it has debt covenants to meet. To recap, WCT undertook a rights issuance to raise up to RM143 million last year for working capital purposes. — Kenanga Research, July 27
This article first appeared in The Edge Financial Daily, on July 28, 2016. Subscribe to The Edge Financial Daily here.