WCT making a comeback

WCT Bhd (Feb 27, RM2.71)
Maintain buy with revised target price of RM3.75 from RM3.70: WCT managing director Taing Kim Hwa was cautiously optimistic over both the construction and property divisions at his maiden briefing.

WCT is a beneficiary of the positive construction environment with ample capacity, strong reputation and competitive cost structure.

Although there is no guidance for FY12F (year-to-date wins are RM631 million or 32% of our RM2 billion forecast), there is potential to exceed this supported by letters of intent (LoI) in hand and strong RM5 billion tender pipeline.

WCT has two LoI in hand — the RM2.8 billion Kota Kinabalu dam project and a RM200 million hospital job.

More imminent local tenders are two Vale SA distribution centre packages, Putrajaya buildings, Iskandar Malaysia building, MRT stations, Kuala Lumpur International Financial District basement, civil and building works, Penang traffic alleviation, Permodalan Basional Bhd building jobs, and LRT depot.

In the Middle East, the advanced projects are Oman Expressways (one of three tenders in mid-2011) and UAE Etihad railway (tender called, award in 2Q12).

WCT will be launching RM1 billion worth of properties in FY12F (target RM700 million). This comes after a strong FY11 with RM457 million sales (against RM220 million in FY12F).

We remain confident WCT will achieve this, given its exposure to the resilient mid-end segment in matured locations such as Bandar Parklands in Bukit Tinggi and Klang (RM650 million sales in FY12F) and 1 Medini in Iskandar Malaysia (RM360 million). 1 Medini is off to a good start with 80% take-up of the RM150 million launch of Phase 1.

We raise FY12F/FY13F earnings by 9% to 13% after imputing a stronger property launch pipeline. With this, our FY12F net profit of RM176 million (+8% year-on-year against flat previously) is still below management's expectation of  15% to 20% growth.

Valuations at 15 times one-year forward price earnings ratio (PER) and 1.3 times price to net tangible assets are close to its mean levels.

With Gamuda Bhd and IJM Land Bhd's capacity being filled gradually, WCT will be in a sweet spot to clinch other key projects. — Hwang DBS Vickers Research, Feb 27