WCT Bhd (July 7, RM3.15)
Maintain buy at RM3.12 with target price of RM3.75: WCT's 2011 job win target remains at RM2 billion riding on a sizeable RM10 billion tender book. This will provide the lift to its RM3.4 billion outstanding order book. We retain our forecast for a 31% growth in 2011 net profit supported by strong property sales, completion of the 1Medini earthworks and good progress at the Qatar government building works. Our target price pegs the stock to sum-of-parts (15 times 2012 price-earnings ratio plus 20 sen value enhancement for the KLIA2 retail concession).
Our optimism is based on an existing RM10 billion tender book of which 65% is in the Middle East and the rest in Malaysia. The former includes potential works in Abu Dhabi and Saudi Arabia. Domestic jobs include a government building job and the LRT Package B in which WCT has participated in the tender. The award for one of two lines (Kelana Jaya) is expected soon while the other (Ampang) at end-3Q or early-4Q.
WCT has also participated in the contractors pre-qualification for the Klang Valley MRT (Sg Buloh-Kajang line) elevated structure works, which closed on April 13. Despite more than 70 contractors having participated, we are positive on WCT being pre-qualified. The elevated structure, spanning an estimated 41.5km, offers a revised works value of RM12 billion to RM13 billion, we understand. The call for tender is expected in July, and work awards towards end-2011.
Locked-in sales for the quarter were at least RM20 million as at mid-June, against RM100 million in 1Q11. The relatively slow sales are believed to be seasonal, with target launches for 2011 staying at RM400 million and target sales at RM300 million. 1Medini condominium (gross development value raised to RM700 million from RM600 million) is still on track for its maiden launch in September. Unbilled sales of RM264 million (73% at Bandar Parklands, 27% in Sabah) should provide for stronger property earnings ahead. The terms are still being finalised with financing issues being sorted out.
WCT has a 70% stake in the concession, together with Malaysia Airports (30%). We derive a preliminary 9% concession internal rate of return based on RM520 million project cost and RM10 per sq ft rental income per month. Our preliminary estimate is a 20 sen per share value enhancement for WCT. — Maybank IB Research, July 7
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