KUALA LUMPUR: Hong Leong Investment Bank Research (HLIB) has maintained its “hold” call on WCT Holdings with a target price of RM2.15.
“While WCT’s earnings are poised for a recovery that will be driven by its sizable orderbook, we remain cautious on its erratic earnings delivery and high net gearing,” HLIB said.
The research house said WCT’s 1QFY17 core earnings of RM37.4mil were above expectations.
“Although 1Q results accounted for 31% of our full year forecast, we are taking a conservative stance and retaining our estimates,” it said.
HLIB said WCT displayed a recovery in construction earnings before interest and tax margin at 7.8% versus 4.2% last quarter and 7.1% in the same period last year.
“Management believes this can be sustained for the remainder of the year as bulk of the works to be recognised this year are infra based which carries higher margins vs building jobs. As of 1Q, 78% of WCT’s RM4.6bil orderbook comprises infra jobs,” it added.
WCT has tendered for over RM10bil worth of jobs, of which 50% are infra based such as the LRT3 (RM9bil), MRT2 stations (RM1.5bil) and KL-Klang BRT (via BOT model).
It is also tendering for RM3.5bil worth of domestic building jobs and RM1.8bil in Qatar.
HLIB said WCT had partnered two state owned enterprise (SOE) contractors which are eyeing on building and infra jobs, to ride on the increasing flow of local contracts awarded to China contractors.
“For FY17, WCT is aiming to replenish its orderbook by RM2biln (YTD: RM186mil),,” it said.
HLIB feels that it was uphill challenge for WCT to rake in RM500mil in sales for its property division in FY17 as no new launches are slated for this year. First quarter property sales only totalled RM49mil with unbilled sales at RM387mil.
To reduce its net gearing, which is currently at 95%, WCT will be undertaking share placement of balance 35 million shares to raise RM50mil.
It will also be setting up its own REIT comprising Paradigm, AEON BBT and Premiere Hotel with market value of RM1.1bil to raise RM400mil and land disposal in Sg Buaya (RM300mil).
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