news

WCT (RHB Research) maintain underperform; fair value RM2.30

WCT: Company update

? 25+10 year BOT. WCT, via a 70:30 JV with Malaysia Airports, has been awarded by Malaysia Airports a 25+10 year Build-Operate-Transfer (BOT) concession for a new “Integrated Complex” at the Kuala Lumpur International Airport 2 (KLIA2).

? Two bites on the same cherry. The latest contract is the second key contract WCT has secured this year, boosting its YTD new contracts secured to RM596m and its outstanding construction orderbook by 21% to RM2.8bn. Assuming an EBIT margin of 8-10%, the latest contract will fetch RM38.9-48.6m EBIT over the construction period. For WCT’s 70% stake in the concession, assuming a project internal rate of return (IRR) of 8.0-10.0%, we estimate that WCT’s investment will yield an enhancement of RM34.0-
114.5m, translating to 3.7-12.6 per WCT share on a fully-diluted basis that is immaterial.

? Positive, but priced in. While we are positive on the latest development, we expect muted reaction from the market as WCT had been hinting on this project for a while, in addition to a RM1bn infrastructure job in Qatar that has yet to materialise.

? Forecasts. Maintained as, for the construction part, we have assumed in our forecasts that WCT will secure RM1.5bn worth of the new jobs in FY12/10, while for the concession part, we do not expect meaningful contribution within our forecast period ending FY12/12.

? Risks to our view. The risks include:
(1) New contracts secured in FY12/10-12 coming in above our target of RM1.5bn per annum; and
(2) Better-than-expected construction margins.

? Maintain Underperform. We are upbeat on construction stocks as we believe they will continue to generally outperform the market from 4Q2010, buoyed by news flow from: (1) The infrastructure development for theGreater KL National Key Economic Area (NKEA) under the Economic Transformation Programme (ETP), particularly, the RM36bn MRT project;
(2) The RM7bn Ampang and Kelana Jaya LRT line extension project; and
(3) Federal land deals. WCT, via WCT – Synohydro JV, has been pre-qualified to bid as main contractor and segmental box girder sub-contractor for the Ampang and Kelana Jaya LRT line extension project. However, upside in WCT’s share price is capped by rich valuations. Indicative fair value is RM2.30 based on 14x fully-diluted FY12/11 EPS of 16.4sen, in line with our benchmark 1-year forward target PER of 10-16x for the construction sector.

Secures RM486m BOT Concession For “Integrated Complex” At KLIA2

? 25+10 year BOT. WCT, via a 70:30 JV with Malaysia Airports, has been awarded by Malaysia Airports a 25+10 year Build-Operate-Transfer (BOT) concession for a new “Integrated Complex” at the new low-cost carrier terminal (LCCT) in Sepang, now known as the Kuala Lumpur International Airport 2 (KLIA2). The “Integrated Complex” will
comprise:
(1) A transportation hub for taxis and buses; (b) A shopping mall with a net lettable area of about 437k sq ft; and
(3) Up to 6,000 parking bays.

? Two bites on the same cherry. The contract will benefit WCT in two ways, i.e.:
(1) A RM486m building job; and
(2) A concession with a steady income stream over 25+10 years (we believe, underpinned by cashflow from rental incomes from the shopping mall, and possibly some form of levies on taxi companies and bus operators).

? The latest contract is the second key contract WCT has secured this year, boosting its YTD new contracts secured to RM596m and its outstanding construction orderbook by 21% to RM2.8bn (see Table 3). Assuming an EBIT margin of 8-10%, the latest contract will fetch RM38.9-48.6m EBIT over the construction period ending June 2012. The
only other project WCT has secured YTD is a 50% share of Bahraini Dinar 24m (RM220m) additional fit-out works for Bahrain City Centre hotels.

? For WCT’s 70% stake in the concession, assuming a project internal rate of return (IRR) of 8.0-10.0%, translating to an equity IRR of 15.3-22.0% (based on 70:30 debt-to-equity, 6.5% cost of debt and 25% tax), by discounting back the projected cashflow at 10%, we estimate that WCT’s investment will yield an enhancement of RM34.0- 114.5m, translating to 3.7-12.6 per WCT share on a fully-diluted basis (see Table 2) that is not material.

? Ceteris paribus, the RM486m investment in the concession will increase WCT’s net debt and gearing of RM339.6m and 0.27x as at 30 Jun 2010 to RM776.1m and 0.63x (having also added back RM49.5m proceeds from the recently announced disposal of stakes in two Indian units to IJM) that is still manageable.

? Positive, but priced in. While we are positive on the latest development, we expect muted reaction from the market as WCT had been hinting on this project for a while, in addition to a RM1bn infrastructure job in Qatar that has yet to materialise.

? Forecasts. Maintained as, for the construction part, we have assumed in our forecasts that WCT will secure RM1.5bn worth of the new jobs in FY12/10, while for the concession part, we do not expect meaningful contribution within our forecast period ending FY12/12.

? Risks to our view. The risks include:
(1) New contracts secured in FY12/10-12 coming in above our target of RM1.5bn per annum; and
(2) Better-than-expected construction margins.

? Maintain Underperform. We are upbeat on construction stocks as we believe they will continue to generally outperform the market from 4Q2010, buoyed by news flow from: (1) The infrastructure development for the Greater KL National Key Economic Area (NKEA) under the Economic Transformation Programme (ETP), particularly, the RM36bn MRT project;
(2) The RM7bn Ampang and Kelana Jaya LRT line extension project; and
(3) Federal land deals. WCT, via WCT – Synohydro JV, has been pre-qualified to bid as main contractor and segmental box girder sub-contractor for the Ampang and Kelana Jaya LRT line extension project. However, upside in WCT’s share price is capped by rich valuations. Indicative fair value is RM2.30 based on 14x fully-diluted FY12/11 EPS of 16.4sen, in line with our benchmark 1-year forward target PER of 10-16x for the construction sector.


Looking for properties to buy or rent? With >150,000 exclusive listings, including undervalued properties, from vetted Pro Agents, you can now easily find the right property on Malaysia's leading property portal EdgeProp! You can also get free past transacted data and use our proprietary Edge Reference Price tool, to make an informed purchase.
SHARE