PP16832/1/213 (31128) Malaysia Company Update 17 February 212 Buy (unchanged) Share price: Target price: RM2.73 Wong Chew Hann, CA wchewh@maybank-ib.com (63) 2297 8686 Stock Information RM3.15 (from RM2.75) Description: Construction group with interests in property development. Ticker: WCT MK Shares Issued (m): 86.1 Market Cap (RM m): 2,2.6 3-mth Avg Daily Volume (m): 1.61 KLCI: 1,55.49 Free float (%): 54. Major Shareholders: % WCT Capital Sdn Bhd 18.9 EPF 14.8 LTH 5.2 OCBC 5.1 KWAP 5. Key Indicators Net cash / (debt) (RM m): (311.8) NTA/shr (RM): 1.77 Net Gearing (x):.2 Historical Chart 4. 3.5 3. 2.5 2. 1.5 1..5. Feb-1 Jun-1 Oct-1 Feb-11 Jun-11 Oct-11 Performance: 52-week High/Low RM3.27/RM1.85 WCT MK Equity 1-mth 3-mth 6-mth 1-yr YTD Absolute (%) 18.7 17.2 (1.2) (16.5) 14.7 Relative (%) 16.6 11.4 (11.7) (19.4) 13.4 WCT News flow to turn positive Maintain Buy with a raised target price. 4Q 211 results, due on 23 Feb, should at least meet our expectation for a full-year (211) net profit of RM154m (+9% YoY). We also retain our 212 forecast for a 9% growth in net profit, supported by strong property sales in 211. With up to RM5b in its tender book, 212 could turn out to be a more positive year for WCT in terms of job wins. We lift our SOP-based TP after pegging to stock to a higher 15x PER (+1SD above mean; previously 13x) on expectations of more news flow turning positive. No negative surprises anticipated. 9M 211 net profit was RM115m (+15% YoY), while our full-year forecast of RM154m implies a RM4m net profit in 4Q (+1% QoQ, -5% YoY). Reported full-year results should at least meet our and consensus forecasts after two consecutive quarters of shortfall, on slow works recognition (in 3Q) and forex losses (totalling RM16m for the first 9M) for construction jobs in the Middle East. We maintain our forecasts for now as we await the final results. Three focus areas for order book upliftment. There is no job win guidance for 212. WCT clinched jobs worth just below RM2m in 211, and a further RM3m in new jobs recently. Nonetheless, the tender book is sizeable at RM4.5-RM5b, of which RM3b comprises jobs in Oman with the balance being domestic jobs. WCT should be able to put in competitive bids owing to its lean cost structure, in turn due to its subcontracting background. Besides tenders, its other areas of focus are in (i) crystallising Letter of Intent jobs, and (ii) clinching local concessions and public-private partnership (PPP) jobs. Property gaining traction. WCT s property sales hit RM45m in 211 (+63% YoY), a record. The bar for 212 has been raised substantially, to RM1b worth of launches and RM7m in sales. The sales target is quite achieveable, in our view, with 7% of the RM1b target launch value being in maiden developments at 1-Medini, Bukit Jelutong and Paradigm. In addition, the Paradigm shopping mall, which has achieved a tenancy rate of at least 8%, is slated to open in Mar/Apr 212, providing another source of recurring income to WCT. WCT Summary Earnings Table FYE Dec (RM m) Revenue 29A 4,666.6 21A 1,78.5 211F 1,469.8 212F 1,559.1 213F 1,973.4 EBITDA 265.4 28.1 255.4 271.8 355.6 Recurring Net Profit 154.3 115.5 154.2 167.5 218.8 FD EPS (Sen) 18.7 17.8 18.8 19.8 24.5 FD EPS growth (%) 43.6 (5.) 5.7 5.7 23.8 DPS (Sen) 1. 1. 1. 1. 1. PER 14.6 15.4 14.5 13.8 11.1 EV/EBITDA (x) 12.5 11.8 13. 12.2 9.3 Div Yield (%) 3.7 3.7 3.7 3.7 3.7 P/BV(x) 1.7 1.7 1.6 1.5 1.3 Net Gearing (x) 21.8 36.6 36.7 25.4 17. ROE (%) 11.7 11.2 11.1 11.2 13.2 Book value (RM) 1.61 1.6 1.73 1.86 2.6 Consensus Net Profit (RM m) n.a n.a 158. 184.7 218.5 Source: MaybankIB Kim Eng Hong Kong is a sub sid iary of Malayan B anking B erh ad SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
Recent developments WCT: Outstanding construction order book Construction focus: Tender crystallisation. The tender book now stands at RM4.5-RM5b, of which RM3b comprises expressways in Oman, with the balance being domestic jobs. The latter includes subcontracting for the West Coast Expressway (project value: RM7.7b), the concession for which was inked recently by a 64.2% subsidiary of Europlus, in turn a 22.7% associate of IJM Corp. WCT s most recent track record with IJM was in Packages 1B and 2A of the Kajang-Seremban Highway works. Other jobs that WCT is vying for include the Vale distribution centre and government building jobs. Construction focus: Letter of Intent (LOI) conversion. This includes a sizable water infrastructure project in Sabah (Papar-Penampang), for which WCT received a LOI in 29 but which has yet to be implemented. The entire works includes a dam and water treatment plant to supply water to Kota Kinabalu, according to earlier press reports. Another existing LOI job is also in East Malaysia, we understand, for the construction of a government building. The combined value of these two potential contracts is about RM3b. Contract value (RMm) Outstanding (RMm) Total WCT s shr at Dec 1 at Mar 11 at Jun 11 at Sep 11 OVERSEAS Government Admin Office, Qatar * 1,36 1,36 1,385 1,276 1,239 1,224 New Doha Intl Airport, Qatar 3,27 1,6 119 124 17 53 Bahrain City Centre Hotel Fit Out 467+221 * 234+111 78 8 - - Dukhan Highway, Qatar 775 38 1 9 - - Others - - 1 3 Total overseas (A) 1,592 1,417 1,356 1,28 DOMESTIC (external) Civil engineering & infrastructure Bakun Dam (CW2) 382 229 65 62 61 6 Medini Iskandar Malaysia 766 766 41 35 273 23 LCCT earthworks EW1 363 363 115 115 98 69 Pinewood Studios, Medini # 28 28-28 28 26 Vale civil works, Perak # 115 115 - - 115 112 MITI HQ, Mukim Batu, KL @ 3.5 3.5 - - - 31 Others 11 11 4 4 592 566 579 82 Building KLIA2 Integrated Complex * 486 486 486 47 42 392 Tuaran Hospital, Sabah * 128 128 128 128 116 17 AEON Mall Melaka 288 288 28 28 28 28 UiTM Campus 435 435 36 36 36 36 Putrajaya Lot 4G9 262 262 75 75 45 22 Putrajaya Lot 4G8 195 195 79 66 44 23 Others 57 24 24 24 889 827 713 632 Total Domestic (external) (B) 1,698 1,393 1,292 1,434 TOTAL EXTERNAL (C=A+B) 2,494 2,81 2,648 2,714 INTERNAL: Paradigm & others (D) 717 625 59 556 TOTAL (C+D) 3,698 3,435 3,238 3,27 Less: Estimated works recognition in 4Q11 (Maybank IB s estimates) (3) Outstanding as at end-dec 11 (Maybank IB s estimates) 2,97 * New in 21; # New in 211; @ New in 212; Sources: Company, Maybank IB 17 February 212 Page 2 of 7
Jun-7 Sep-7 Dec-7 Mar-8 Jun-8 Sep-8 Dec-8 Mar-9 Jun-9 Sep-9 Dec-9 Mar-1 Jun-1 Sep-1 Dec-1 Mar-11 Jun-11 Sep-11 WCT WCT: Yearly construction order book replenishment 4, 3,94 3, 2,585 2,195 1,959 2, 1,418 1,17 1, 187 31 25 26 27 28 29 21 211 212 YTD WCT: Outstanding construction order book 7, Overseas Domestic (external) Domestic (internal) 6, 5, 4, 3, 2, 1, Property development: Record sales in 211. The RM45m in sales achieved was 63% higher YoY and 13% above management s internal 211 sales target of RM4m. We estimate that the total unbilled sales stood at RM37m as at end-211 (end-21: RM178m), which will underpin stronger property earnings in 212. In addition, the bar for 212 has been raised significantly, with a target of RM1b in launches and RM7m in sales. These comprise (i) 1-Medini phases 1 & 2 (RM3m), (ii) Bandar Bukit Tinggi (RM3m), (iii) Bukit Jelutong service apartments (RM15m), (iv) Paradigm service apartments (RM15m), and (vi) 56 acres in Klang (RM1m). Land-banking activities (the group added 59 acres in 211) will continue in 212. WCT: Yearly property sales 8 7 6 45 4 271 276 2 139 152 27 28 29 21 211 212F WCT: Land bank Location Total acres Balance acres GDV (RMm) Devt type BBT, Klang 1,336 367 1,5 Township Klang # 56 56 35 Luxury homes Paradigm, PJ 12 12 7 Mixed commercial 1-Medini, Johor 11 11 7 High-rise homes Medini Business District, 1 1 8 Mixed commercial Johor # Bkt Jelutong, Shah Alam * 2.3 2.3 3 Mixed commercial Bdr Serendah, S gor * 39 39 35 Industrial Rawang, Selangor * 468 468 TBA Township Ho Chi Minh City, Vietnam 22 22 1, Mixed commercial Total 1,956 987 5,7 # New in 21; * New in 211 Property investment: Paradigm mall set for opening. The shopping mall (7, sq ft NLA) has achieved a tenancy rate of at least 8%, with an average rental of RM6.5 psf per month. This will result in a gross rental of RM43.7m pa for WCT after the mall opens in Mar/Apr 212 (on target). Main anchors are Tesco, GSC and Harvey Norman. There will also be car park rental income to be derived from 5, bays in the entire Paradigm (Kelana Jaya) development plan which also includes offices, a hotel and serviced apartments. 55, sq ft of office space will also be opened for sale in 212. 17 February 212 Page 3 of 7
Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 WCT Paradigm PJ Development Component Purpose NFA sqf Launch Shopping mall Investment 7, 212 Premiere Hotel Investment 55, 214 Premiere Banquet Investment 5, 214 Office tower For sale 55, 212 Service apartment For sale 42, 213 Total 2,27, Main anchors for the shopping mall are Tesco, GSC, Harvey Norman; Combined estimated GDV for office tower and service apartment is RM7m WCT: Investment properties Property Stake Property type Completion Retail NLA / rooms BBT shopping mall, 1% Retail + 5, Jan 28 1m sq ft Klang car parks Premiere Hotel, Klang 1% 4-star Sept 21 25 rooms business hotel Paradigm Mall, Kelana 7% Retail + 5, Mar 212.7m sq ft Jaya car parks KLIA2 Integrated 7% Retail + 6, Apr 213.35m sq ft Complex car parks Premiere Hotel, Kelana Jaya 1% 4-star business hotel 214 28 rooms Valuations Raising target price. Valuations are still not pricey despite the share price gaining 15% year to date, with the stock trading at 12.7x one-year forward earnings (rolling). We think that another sizeable job win could re-rate the stock to a higher level. We lift our SOP-based TP after pegging the stock to a higher 15x 212 PER (one standard deviation above mean; previously 13x) on expectations of news flow turning positive. Our TP includes a 2sen value accretion from the KLIA2 Integrated Complex concession (7% stake) inked late last year. WCT: Foreign shareholding (14% @ Dec 11; +/- % YoY) 3 25 2 WCT: One-year forward rolling PER 4 3 15 1 5 2 1 +1sd: 15.2 Mean: 8.7 Sources: Company, Maybank IB Sources: Bloomberg, Maybank IB 17 February 212 Page 4 of 7
INCOME STATEMENT (RM m) BALANCE SHEET (RM m) FY Dec 21A 211F 212F 213F FY Dec 21A 211F 212F 213F Turnover 1,78.5 1,469.8 1,559.1 1,973.4 Fixed Assets 292.2 245. 287. 328.1 EBITDA 28.1 255.4 271.8 355.6 Other LT Assets 1,651.3 1,744.6 1,664.7 1,65.6 Depreciation & Amortisation (16.3) (17.1) (18.) (18.9) Cash/ST Investments 1,162.4 845.6 875.2 1,24.4 Operating Profit 263.7 238.3 253.8 336.7 Other Current Assets 1,446.6 1,33.7 1,81.6 1,33.4 Associates 7.8 17.9 18.8 19.8 Total Assets 4,552.5 3,868.9 3,98.5 4,261.6 Interest (Exp)/Inc (4.) (57.1) (49.4) (5.) Exceptional Items 25.6... ST Debt 55.4 454.9 5.4 55.4 Pre-Tax Profit 257.6 199.1 223.2 36.5 Other Current Liabilities 1,32. 488.6 517.9 651.4 Tax (47.9) (44.8) (53.3) (76.6) LT Debt 1,115.9 91. 756.2 756.2 Minority Interest (68.5). (2.4) (11.) Other LT Liabilities 368.7 357.1 357.1 357.1 Net Profit 141.2 154.2 167.5 218.8 Minority Interest 275.2 275.2 277.5 288.5 Recurring Net Profit 115.5 154.2 167.5 218.8 Shareholders' Equity 1,255.4 1,392.2 1,499.4 1,657.9 Total Liabilities-Capital 4,552.5 3,868.9 3,98.5 4,261.6 Revenue Growth % (63.4) (14.) 6.1 26.6 EBITDA Growth (%) 5.5 (8.8) 6.4 3.8 Share Capital (m) 786.9 84.7 84.7 84.7 EBIT Growth (%) 9.7 (9.6) 6.5 32.7 Net Debt 458.9 51.3 381.4 282.2 Net Profit Growth (%) (4.) 9.3 8.6 3.6 Working Capital 187. 317.5 336.1 424.3 Recurring Net Profit Growth (%) (25.2) 33.5 8.6 3.6 Gross Gearing % 129.1 97.4 83.8 78.8 Tax Rate % 2.7 22.5 23.9 25. CASH FLOW (RM m) RATES & RATIOS FY Dec 21A 211F 212F 213F FY Dec 21A 211F 212F 213F Profit after taxation 257.6 199.1 223.2 36.5 EBITDA Margin % 16.4 17.4 17.4 18. Depreciation 16.3 17.1 18. 18.9 Op. Profit Margin % 15.4 16.2 16.3 17.1 Net interest receipts/(payments) 4. 57.1 49.4 5. Net Profit Margin % 8.3 1.5 1.7 11.1 Working capital change (177.6) (13.6) (18.5) (88.3) ROE % 11.2 11.1 11.2 13.2 Cash tax paid (47.9) (44.8) (53.3) (76.6) ROA % 3.1 3.7 4.3 5.4 Others (incl'd exceptional items) 88.2 (52.1) 89.3 65.9 Net Margin Ex. El % 6.8 1.5 1.7 11.1 Cash flow from operations 176.5 45.9 38.1 276.4 Dividend Cover (x) 41.8 39.1 36. 27.6 Capex 16.8 3. (6.) (6.) Interest Cover (x) 7.2 4.2 5.1 6.7 Disposal/(purchase).... Asset Turnover (x).4.4.4.5 Others.... Asset/Debt (x) 2.8 2.9 3.1 3.3 Cash flow from investing 16.8 3. (6.) (6.) Debtors Turn (days) 182.6 12. 12. 12. Debt raised/(repaid) 634.1 (265.4) (99.3) 5. Creditors Turn (days) 25.1 12. 12. 12. Equity raised/(repaid)... 1. Inventory Turn (days) 24. 17.3 11.8 1.9 Dividends (paid) (59.) (6.4) (6.4) (6.4) Net Gearing (x).4.4.3.2 Interest payments (5.4) (67.) (58.8) (58.9) Debt/ EBITDA (x) 5.8 5.3 4.6 3.7 Others... 1. Debt/ Market Cap (x).7.6.6.6 Cash flow from financing 524.7 (392.7) (218.5) (67.2) EV/EBITDA (x) 11.8 13. 12.2 9.3 Change in cash 88. (316.8) 29.6 149.2 Sources: Company, Maybank-IB 17 February 212 Page 5 of 7
APPENDIX 1 Definition of Ratings Maybank Investment Bank Research uses the following rating system: BUY Total return is expected to be above 15% in the next 12 months HOLD Total return is expected to be between -15% to 15% in the next 12 months SELL Total return is expected to be below -15% in the next 12 months Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Some common terms abbreviated in this report (where they appear): Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings BV = Book Value FV = Fair Value PEG = PE Ratio To Growth CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders Funds EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date EV = Enterprise Value PBT = Profit Before Tax Disclaimer This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each security s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad and consequently no representation is made as to the accuracy or completeness of this report by Maybank Investment Bank Berhad and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Maybank Investment Bank B erhad, its affiliates and related companies and their officers, directors, associates, connected parties and/or employees may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as anticipate, believe, estimate, intend, plan, expect, forecast, predict and project and statements that an event or result may, will, can, should, could or might occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on thes e forwardlooking statements. Maybank Investment Bank Berhad expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrenc e of unanticipated events. This report is prepared for the use of Maybank Investment Bank Berhad's clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written cons ent of Maybank Investment Bank Berhad and Maybank Investment Bank Berhad accepts no liability whatsoever for the actions of third parties in this respect. This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. 17 February 212 Page 6 of 7
APPENDIX 1 Additional Disclaimer (for purpose of distribution in Singapore) This report has been produced as of the date hereof and the information herein maybe subject to change. Kim Eng Research Pte Ltd ("KERPL") in Singapore has no obligation to update such information for any recipient. Recipients of this report are to contact KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law. As of 17 February 212, KERPL does not have an interest in the said company/companies. Additional Disclaimer (for purpose of distribution in the United States) This research report prepared by Maybank Investment Bank Berhad is distributed in the United States ( US ) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Kim Eng Securities USA, a brokerdealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Kim Eng Securities USA in the US shall be borne by Kim Eng. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. This report is not directed at you if Kim En g Securities is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Kim Eng Securities is permitted to provide research material concerning investments to you under relevant legislation and regulations. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply if the reader is receiving or accessing this report in or from other than Malaysia. As of17 February 212, Maybank Investment Bank Berhad and the covering analyst does not have any interest in in any companies recommended in this Market themes report. Analyst Certification: The views expressed in this research report accurately reflect the analyst's personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report. Additional Disclaimer (for purpose of distribution in the United Kingdom) This document is being distributed by Kim Eng Securities Limited, which is authorised and regulated by the Financial Services Auth ority and is for Informational Purposes only.this document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidanc e recipients should consult with their own independent tax advisers. Published / Printed by Maybank Investment Bank Berhad (15938-H) (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 1 Jalan Tun Perak, 55 Kuala Lumpur Tel: (63) 259 1888; Fax: (63) 278 4194 Stockbroking Business: Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59 Kuala Lumpur Tel: (63) 2297 8888; Fax: (63) 2282 5136 http://www.maybank-ib.com 17 February 212 Page 7 of 7