WCT Bhd (MiDF Research) buy; target price RM3.30

WCT Berhad
More jobs to come

WCT recorded a net profit of RM35.0m in 1Q10,  which was within our expectation and consensus.

Pretax margin improved to 13% in 1Q10 as compared to 7.1% in 1Q09, thanks to its E&C and property & investment holdings while property development remained stable.

Maintain BUY recommendation with a target price of RM3.30, pegged at 14.5x PER on FY10 EPS. At RM2.57, the stock represents a 12-
month potential returns of 32%, inclusive of 3.5% dividend yield.

1QFY10 results were within expectation. WCT recorded a net profit of RM35.0m for 1Q10, down 11%yoy and +7.4%qoq. Although E&C division registered lower EBIT, other divisions especially property development and property & investment holding recorded higher EBIT in 1Q10 as property sales showed an improvement as compared to 1Q09. WCT’s turnover in 1Q10 dropped 60%yoy due to lower recognition from its construction division.

Orderbook remains strong. The group continued to aggressively bidding for new jobs, both overseas and domestic in order to replenish its existing orderbook of RM3.2b. YTD, WCT secured the RM221m Bahrain City Centre Hotels Fit Out Works in February via its 50%-owned company, Cebarco-WCT. Besides that, WCT is also bidding other jobs in Iskandar Malaysia, Johor and a major water infrastructure work in Sabah. We believe that WCT would remain its 50:50 split between local jobs and the Middle East contracts.

Prequalified for the LRT extension job. On the home front, WCT was recently identified as one of the prequalified main contractors for the LRT extension project, together with 16 other prequalified applicants. WCT was also prequalified for the subcontractors. Although we are expecting intense competition among the prequalified bidders, we do not discount the possibility of WCT to clinch a portion of the LRT extension job as the company would likely pose competition to the other bidders in terms of competitive pricing.

Maintain BUY. We are maintaining our target price of RM3.30, implying a potential upside of 32% (including dividend yield of 3.5%) from its current share price of RM2.57, backed by positive outlook in the construction sector and WCT’s proven track records in securing jobs, both domestic and in the Middle East. The current share price weakness resulting from global selldown provides an opportunity for investors to accumulate WCT shares.

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