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Thursday, November 26, 2015

Bright spots for WCT as construction picks up

KUALA LUMPUR: CIMB Equities Research expects earnings risks arising from the tough property market to be mitigated by a major recovery for WCT's construction prospects.
It said on Thursday the challenging visibility on the company’s property sales target for FY16 was unsurprising given current demand conditions.
However, it expected this to be compensated by a pickup in progress billings for the RM4.1bil outstanding order book. The outlook was anchored by RM2.7bn worth of jobs in tender with potential successful wins in the short term.
CIMB Research said targeted jobs over the next 12 months included the fourth package infra from Petronas's Rapid worth RM300mil to RM400mil.
The others include additional works for the Tun Razak Exchange where there is RM1bil of available works; and also additional works for Kwasa Damansara.
Also included are subcontract works from UEM-Samsung JV for the KL 118 tower - RM1bil estimated and several new tenders for railway for KTM.
CIMB Research said there were also potential jobs for the 15 prequalified contractors for the Pan-Borneo Highway (Sarawak portion) where WCT has prequalified.
It also noted WCT had prequalified for the elevated package for MRT 2.
“Our FY15 core net profit forecast reflects subdued property demand (about RM400mil in total revised sales for FY15 from RM584mil before) and newly secured jobs.
“We forecast 26% EPS growth for FY16, a recovery from a low-base in FY15, in line with guidance. Infra/civil works dominating order book; margin upside 44% of WCT's external order book of RM4.1mil is made up of new infra/civil which are still largely in the earlier milestones.
“There is a logistical advantage given the location of the new packages for the TRX, suggesting upside to the 7%-8% pretax margin to up to 10%.
“A positive surprise was that there are at least two more potential infra/civil works from the TRX, including the RM900mil traffic dispersal scheme, which will be up for tenders soon,” it said.
Another surprise was potential subcontract works (RM1bil) for the KL118 tower.
“Our RM1.76 target price remains pegged to a 30% RNAV discount,” it said.

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