WCT Holdings Bhd Above Expectations By Adrian Ng l adrian.ng@kenanga.com.my 1Q16 core net profit (C) of RM32.0m came in above our but within consensus expectations accounting for 37% and 22% of estimates, respectively. No dividend was declared as expected. Raised our FY16E and FY17E Cs by 62% and 13%, respectively. MARKET PERFORM maintained with a higher TP of RM1.85. 1Q16 C of RM32.0m beat our but inline with consensus expectations, accounting for 37% and 22% of full-year estimates, respectively. Our C was derived after stripping off unrealised forex gains of RM23.1m. The positive variance to our estimates stemmed from our overly conservative margin assumptions for its construction division which we believe its margins would have picked up on the execution of its local earthwork related projects. Construction works picking up pace. C saw a significant increase of 117%, YoY on the back of higher revenue, which improved by 38%, YoY backed by the steady progress of its on-going construction jobs secured last year. Its construction revenue was up by 51% whereas its property development and investment divisions only saw marginal improvements in revenue of 5% and 3%, respectively. QoQ, C improved by 50% despite revenue growth of 7%, attributable to the improvements in construction margins (exforex losses) from 2.4% to 7.1%, coupled with the improvement in property development earnings (+72%). However, its net gearing had crept up to 0.81x from 0.79x which is above our comfortable levels of 0.5x-0.6x. Raising FY16E and FY17E earnings by 62% and 13% to RM141.3m and RM193.5m, respectively on the back of higher construction margin assumptions (of which we were overly conservative). Outlook. We believe WCT will be busy executing its outstanding orderbook of RM4.8b, which provides them another 2-3 years earnings visibility, while targeting another RM2.0b worth of job replenishments and RM600.0m worth of property sales. The targeted jobs replenishments are Kwasa Damansara, Pan Borneo, TRX, RAPID, highways and others; the collective tenderbook sized up to RM2.0b-RM3.0b. Major property launches would be coming from its OUG project namely Paradigm Garden City with an estimated GDV of c.rm400.0m for Waltz Residence. Maintain Market Perform. Following the upgrade in our FY16E and FY17E earnings, we raised our SoP-driven Target Price to RM1.85 (previously, RM1.51) as we roll forward our valuation base year to FY17E. Our TP implies a. FD FY17E PER of 14.6x, which is slightly lower compared to other big cap contractors. However, its net gearing of 0.81x is exceptionally high, which is beyond our comfortable level of 0.5x-0.6x. Hence, we maintain MARKET PERFORM on the stock. MARKET PERFORM Share Price Performance Price: RM1.69 Target Price: RM1.85 KLCI 1,630.96 YTD KLCI chg -3.6% YTD stock price chg 5.0% Stock Information Shariah Compliant Yes Bloomberg Ticker WCTHG MK Equity Market Cap (RM m) 2,110.0 Issued shares 1,248.5 52-week range (H) 1.76 52-week range (L) 1.10 3-mth avg daily vol: 2,122,274 Free Float 63% Beta 1.1 Major Shareholders WCT CAPITAL SDN BHD 19.7% LEMBAGA TABUNG HAJI 10.1% EMPLOYEES PROVIDENT 7.3% Summary Earnings Table FY Dec (RM m) 2015A 2016E 2017E Turnover 1,667.9 1,872.9 2,118.2 EBIT 241.2 241.2 281.9 PBT 271.6 281.7 222.8 Net Profit () 219.1 244.7 193.5 Core net profit 49.3 141.3 193.5 Consensus () n.a. 149.1 179.3 Earnings Revision n.a. 62% 13% Basic EPS 3.9 11.2 15.4 FD EPS (sen) 3.2 9.3 12.7 EPS growth (%) n.a. 187% 37% DPS (sen) 4.2 4.5 5.4 NTA/Share (RM) 1.86 2.01 2.11 Basic PER (x) 43.1 15.0 11.0 FD PER (x) 52.2 18.2 13.3 BVPS (RM) 1.86 2.01 2.11 Net Gearing (x) 0.8 0.6 0.6 Dividend Yield (%) 2.5 2.7 3.2 PP7004/02/2013(031762) Page 1 of 5
Result Highlight Y/E : Dec (RM mn) 1Q16 4Q15 QoQ Chg 1Q15 YoY Chg Turnover 485.0 522.2-7% 351.6 38% EBIT 29.5 8.2 261% 59.3-50% Interest expense (13.4) 2.9-563% (20.0) -33% Associates 2.7 4.1-34% 2.1 27% Exceptional items (23.1) 47.7 n.m 18.5 - Pretax profit 25.2 84.1-70% 42.7-41% Taxation (15.1) (15.4) -2% (9.4) 60% Profit after tax 10.1 68.7-85% 33.3-70% Minority interest 1.3 (0.2) -688% 0.1 1478% Net profit 8.8 68.9-87% 33.2-73% Core net profit 32.0 21.3 50% 14.8 117% EPS (sen) 0.6 4.5-87% 2.2-73% DPS (sen) 0.0 2.0 n.m 0.0 n.m EBIT margin 6% 2% 17% Pretax margin 5% 16% 12% Effective tax rate 60% 18% 22% Source: Company, Kenanga Research Segmental Breakdown Y/E : Dec (RM mn) 1Q16 4Q15 QoQ Chg 1Q15 YoY Chg Revenue -Construction 378.1 451.1-16% 249.9 51% -Property development 92.0 54.1 70% 87.3 5% -Property investment 14.9 17.0-12% 14.4 3% Group Revenue 485.0 522.2-7% 351.6 38% *Segment Profit -Construction 3.7 (19.3) -119% 27.4-86% -Property development 18.3 10.6 72% 25.6-28% -Property investment 7.4 16.7-55% 6.3 19% Group EBIT 29.5 8.1 265% 59.3-50% *EBIT Margin -Construction 1% -4% 11% -Property development 20% 20% 29% -Property investment 50% 98% 44% *Note: Segment profit are non-core profit which includes unrealised forex gains/(losses) Source: Company, Kenanga Research PP7004/02/2013(031762) Page 2 of 5
Table 1: Sum-of-parts valuation Segment Stake Method Value (RMm) Construction 100% 12x FY16 PER 601.0 Property development 100% RNAV of 50% discount 552.9 Property investment -excl KLIA2 IC Various Book Value 473.9 KLIA2 Integrated complex 70% DCF 435.9 Highway concession in India 30% Book Value 128.3 Sub Total 2,191.9 Proceed from warrants (C and D) 688.5 Total 2,880.4 No of FD shares 1,522.4 SOP/share 1.89 Target Price (20% discount) 1.51 Implied Basic PE (x) 20.8 Implied FD PE (x) 26.4 Source: Kenanga Research PER Band PBV Band RM PRICE (RM) PER 13.0 x PER 20.3 x PER 27.6 x PER 34.9 x PER 42.1 x RM PRICE (RM) PBV 0.6 x PBV 0.9 x PBV 1.2 x PBV 1.6 x PBV 1.9 x 3.00 3.50 2.50 3.00 2.00 2.50 1.50 2.00 1.00 1.50 0.50 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 1.00 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Source: Bloomberg, Kenanga Research This section is intentionally left blank PP7004/02/2013(031762) Page 3 of 5
Peer Comparison CORE COVERAGE NAME Price Mkt Cap PER (x) (RM) (RMm) Actual 1 Yr Div. Yld. ROE P/BV Net Profit (RMm) 1 Yr (%) (%) (x) Actual 1 Yr Target Price (%) (%) (RM) Rating YTD (%) EVERSENDAI CORP BHD 0.68 522.4 11.0 10.1 9.6 3.0 5.5 0.6 47.5 51.5 54.2 8.4 5.2 0.73 Market Perform -11.76 GAMUDA BHD 4.76 11488.0 16.7 18.0 16.2 2.5 13.2 2.4 687.2 636.8 709.7-7.3 11.4 4.67 Market Perform 2.15 IJM CORP BHD 3.48 12488.2 25.6 20.5 18.7 4.3 3.3 0.7 488.6 610.4 669.0 24.9 9.6 3.51 Market Perform 2.96 KIMLUN CORP BHD 1.77 532.0 8.3 7.6 6.3 3.4 13.7 1.0 64.4 70.0 83.8 8.7 19.7 2.10 Outperform 28.26 MUHIBBAH ENGINEERING (M) BHD 2.23 1053.3 11.8 11.3 10.0 2.2 8.8 1.0 88.9 92.9 104.9 4.5 12.9 2.79 Outperform 0.90 HOCK SENG LEE BERHAD 1.68 923.2 12.1 11.7 10.3 1.7 10.9 1.3 76.2 78.8 89.2 3.4 13.2 1.79 Market Perform -11.11 NAIM HOLDINGS BERHAD 1.81 428.9 194.9 11.7 10.3 2.2 2.7 0.3 2.2 36.7 41.7 1568.2 13.6 1.56 Underperform -26.42 WCT HOLDINGS BHD 1.69 2110.0 42.8 14.9 10.9 2.7 5.6 0.8 49.3 141.3 193.5 186.6 36.9 1.85 Market Perform 4.97 MMC CORP BHD 2.13 6486.0 54.6 25.8 20.5 0.0 2.7 0.7 118.8 251.6 316.6 111.8 25.8 2.72 Outperform 8.67 MITRAJAYA HOLDINGS BHD 1.33 854.6 9.7 8.1 7.5 3.2 22.9 1.8 87.7 105.8 114.4 20.6 8.1 1.77 Outperform 10.83 Average 38.8 14.0 12.0 NOT RATED/ON OUR RADAR NAME Price Mkt Cap PER (x) (RM) (RMm) Actual 1 Yr Div. Yld. ROE P/BV Net Profit (RMm) 1 Yr (%) (%) (x) Actual 1 Yr Target Price (%) (%) (RM) Rating YTD (%) MUDAJAYA 1.22 656.8-460.0 17.5 10.5 2.3 3.3 0.6-1.4 37.4 62.5-2721.4 67.1 n.a. Not Rated 3.39 PROTASCO 1.70 573.3 8.7 7.0 n.a. 5.9 n.a. n.a. 66.2 81.4 n.a. 22.9 n.a. 2.25 Trading Buy 5.59 PINTARAS JAYA 3.50 572.3 11.0 17.2 12.1 4.2 9.5 1.6 51.9 33.2 47.5-36.0 42.8 4.20 Trading Buy 6.06 GABUNGAN AQRS 0.94 367.1-37.1 8.7 9.9 1.6 n.a. n.a. -9.9 42.0 37.1-524.8-11.7 n.a. Not Rated 13.25 GADANG HOLDINGS 2.03 525.0 8.9 6.8 6.4 2.9 16.4 1.1 58.8 77.4 81.9 31.6 5.8 2.44 Not Rated -4.25 AZRB 0.72 344.7 15.1 n.a. n.a. n.a. n.a. n.a. 22.9 n.a. n.a. n.a. n.a. n.a. Not Rated 12.60 TRC SYNERGY 0.45 213.8 7.0 10.4 6.4 2.2 5.4 0.6 30.7 20.6 33.4-32.9 62.1 n.a. Not Rated 20.27 BINA PURI 0.37 87.1 26.4 6.4 5.0 5.5 n.a. n.a. 3.3 13.7 17.4 315.7 27.0 n.a. Not Rated -15.12 Average -62.2 11.2 8.4 Source: Kenanga Research PP7004/02/2013(031762) Page 4 of 5
Stock Ratings are defined as follows: Stock Recommendations OUTPERFORM :A particular stock s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). MARKET PERFORM :A particular stock s Expected Total Return is WITHIN the range of 3% to 10%. UNDERPERFORM :A particular stock s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). Sector Recommendations*** OVERWEIGHT :A particular sector s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). NEUTRAL :A particular sector sexpected Total Return is WITHIN the range of 3% to 10%. UNDERWEIGHT :A particular sector sexpected Total Return is LESS than 3% (an approximation tothe 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). ***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage. This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) 8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenanga.com.my Chan Ken Yew Head of Research PP7004/02/2013(031762) Page 5 of 5