Nov 22, 2011

WCT Price Target RM3.70

WCT: Buy;  RM2.31 Price Target: RM3.70     
Highlights from analyst briefing
i)  WCT provided more sombre outlook in terms of new order wins citing Eurozone concerns where a lot of Middle East projects are still being funded by European banks, longer lead time in procuring new jobs and margin conservation as key issues. However, it did not officially tone down its RM2bn new order wins for 2011 (YTD wins of RM187m). 

ii)  Our forecast for new wins in FY11 is RM400m and RM2bn in FY12F but we have assumed very little profit recognition in FY11. Total outstanding external orderbook is RM2.4bn equally split between local and Middle East jobs. 3Q11 construction EBIT margins of 11% will be more reflective of margins gong forward.

iii)  Total tenderbook now stands at RM4bn of which RM3bn is for highway jobs in Oman and the balance RM1bn for 2 building jobs locally. We understand the tenders in Oman are with a new JV partner which is a specialist in highway related projects. WCT will likely have a majority stake of 80% in these projects.

iv)  Some of the other jobs which WCT is pursuing locally are balance of Vale earthworks of RM3bn, Putrajaya building, Iskandar Malaysia projects, Interstate Water Transfer, KLIFD, southern double tracking, West Coast Expressway, Penang traffic alleviation and PNB buildings. 

v)  Property sales have been robust with YTD September sales of RM398m already tracking its FY11 sales target of RM400m. It is likely WCT will end the year with sales of RM420m-RM430m excluding 1 Medini. 1 Medini has yet to be launched as WCT is looking to raise pricing beyond US$150 psf. Initial registrations have been strong with 275 units out of 300 booked. 

We maintain our Buy rating and SOP-derived TP of RM3.70.

by HWDBS