WCT optimistic despite no MRT jobs

WCT Bhd (Oct 10, RM2.10)
Maintain market perform with fair value RM2.08: WCT reiterated its guidance of RM2 billion worth of new contracts in FY11 ending December, despite having only secured RM187 million year-to-date. Specifically, WCT spoke about "a large shopping mall near the Abu Dhabi F1 Circuit", "highways in Oman", "government offices in Qatar" and a new building for the Ministry of International Trade and Industry reportedly worth about RM300 million.

WCT is caught in an odd situation. It is the third largest construction company listed on Bursa Malaysia by market capitalisation, yet it is staring at the prospect of not being involved at all in the RM20 billion Sungai Buloh-Kajang (SBK) Line of the Klang Valley MRT project.

However, we draw comfort from: (i) WCT is seeking a dialogue with MRT Co on it being left out of the list of contractors pre-qualified to bid for the "open" elevated civil work packages; (ii) The market may have substantially priced in this "odd situation"; and (iii) With substantial industry capacity being locked up in the MRT project, there will be less competition in the sector, so WCT stands a better chance of winning other public jobs as well as private-sector jobs.

We maintain our forecasts but risks to our view include: (i) new contracts secured in FY11 to FY13 coming in below our target of RM1.5 billion per year; and (ii) escalation of input costs.

We have turned positive on the construction sector as there is now even more urgency for the government to expedite the rollout of various public projects to pump- prime the local economy to shield it against the increased risk of the global economy slipping into a double-dip recession. Indicative fair value for WCT is RM2.08 based on 12 times fully-diluted FY12 earnings per share of 17.3 sen, in line with our benchmark 1-year forward target price earnings ratio of 10 to 14 times for the construction sector. — RHB Research, Oct 10