Analysts’ positive on WCT’s early Merdeka 118 award
KUCHING: Analysts’ are positive on the news of WCT Holdings Bhd’s (WCT) RM676.8 million contract win from Merdeka 118 which was announced last Friday.
The job to build an eight-storey Phase 2 shopping complex project for part of integrated development Merdeka 118, will be carried out in a 51:49 joint-venture with WCT and TSR Capital Bhd’s subsidiary TSR Bina Sdn Bhd (WCT-TSR).
Construction works are expected to commence in early January 2019 and is scheduled to be completed within two and a half years from the commencement date.
According to analyst firms Kenanga Investment Bank Bhd (Kenanga Research) and MIDF Investment Bank Bhd ( MIDF Research), this early Christmas present from WCT is the third contract bagged by the developer, translating to an addition of RM345.2 million to its orderbook.
This brings its total effective replenishment for the year circa RM2.7 billion – far exceeding Kenanga Research’s and MIDF Research’s assumptions of RM2 billion for 2018.
After factoring in the Merdeka 118 contract providing earnings visibility for the next 2.5 to three years, WCT’s outstanding orderbook currently stands at circa RM7.3 billion.
Despite this pleasant surprise, both Kenanga and MIDF Research are maintaining their earnings forecasts for now they are expecting the win to help offset the down-cycle in the property industry in 2019.
However, should WCT demonstrate their ability to maintain the momentum in se3curing private projects with high contract values, Kenanga research guides that they may look to review their replenishment assumptions for the developer for 2019.
“Assuming pre-tax margin of 7 per cent and based on its effective stake of 51 per cent, the project is expected to contribute circa RM7.09 million to its bottom-line preannum,” said the research arm.
For now, sentiment for WCT is on the positive side but analysts are still cautious as they are still weary of the conditions of the property market in the short-term.
Kenanga Research maintains its ‘Outperform’ call to the stock with no changes to its sum of parts (SoP)-driven target price (TP) to RM1.10.
“We maintain our OUTPERFORM view for its improving order-book trajectory in challenging times, and we laud management for their iron will in performing a herculean task turning the company around especially for its property division.
“Our current TP implies FY19E price earnings ratio ( PER) of 10.5-fold, below with its 3-year -1.5 standard deviation levels closer to its through levels,” guided the research arm.
Meanwhile, MIDF Research maintains its ‘ Buy’ recommendation on WCT with an unchanged TP of RM1.05 – pegging its FY19 earnings per share (EPS) to price earnings ratio (PE) of 13.0-fold.
“It is notable that WCT is trading at price-to-book ratio (PBR) of 0.29-fold, implying an attractive opportunity to increase exposure,” added the research arm.