Tougher times ahead coming for WCT
KUCHING: Hong Leong Investment Bank Bhd ( HLIB Research) believe tougher times are coming forWCT Holdings Bhd (WCT) in spite od the group’s outstanding orderbook.
WCT’s orderbook currently stands at RM6 billion, translating to a healthy cover ratio of four times. The orderbook was boosted by the award of Pavilion Damansara Phase 2 (RM1.2 billion) during the MCO.
The Pavilion Damansara Phases 1 and 2 contracts now account for 48 per cent of the group’s total orderbook. Management estimates that circa 90 per cent of all foreign workers required have been screened for Covid-19 and current pace of works are about 50 per cent of its normalised operating capacity.
Nevertheless, the firm’s construction margins in 1QFY20 contracted by 5.9 percentage points year on year (y-o-y) to 2.9 per cent as a result of downward margin revision for selected infra works to account for fixed overheads incurred and delay costs.
“On building side, management is maintaining its margin guidance whereby progress of works has largely kept up with the scheduled timeline,” HLIB Research saw yesterday.
“WCT’s outstanding LRT 3 work package orderbook postdownsizing stands at RM837 million, or about 14 per cent of outstanding orderbook). Pace of works have been slow pending finalisation of the novated agreement.”
Under its property development wing, WCT recorded sales of RM120 million in 1QFY20 with RM131 million achieved year to date. Unbilled sales stands at RM177 million representing a thin 0.5 times cover. Upon the MCO, HLIB Research saw that a significant amount of WCT’s bookings (RM59 million year to date) were delayed or cancelled.
“WCT’s focus will remain on clearing its completed inventory amounting to a gross domestic value ( GDV) of RM742 million (inclusive of JV project in Kelana Jaya), up from RM738 million in 4Q19,” it added “Going forward, management is delaying the planned launch of The Maple, originally slated for 3Q20 with no planned launches for 2020.
“In terms of land sales, no transactions are expected in 2QFY20 with full year target in the midst of revision. We reckon the uncertain environment is bound to impede significantly on landbanking activities.”
Looking at property investment, WCT’s occupancy rates remained rather healthy in 1QFY20 with most unchanged. Nonetheless, HLIB Research took note that the quarter only reflected two weeks of MCO, signalling that the worst was yet to come.
“WCT provided full rental waivers for tenants from March 18 to April. In order to maintain occupancy rates above 90 per cent going forward, management will consider max rebate of 50 per cent on a case by case basis starting May.
“We see downside risks to occupancy rates at Paradigm JB as we understand a substantial number of leases will be up for renewal in end-2020.”
Things are substantially bleaker for its hotels, where average occupancy rates dropped to circa 30 per cent from 50 to 60 per cent previously. Entering the RMCO, occupancy is overing at 10 per cent. We think a return to normalcy is some way off and may hinge on a vaccine materialising.
The company has so far issued a cumulative RM821 million of perpetual sukuk to retire its RM800 million medium term notes (MTN).
According to management any further issuance will depend on the state of the capital markets (perpetual sukuk programme up to RM1 billion). At present, WCT has retired all but RM183 million (earlier than scheduled) of the MTN which will be completely retired in August 2020.
“Moving forward, its next major bond redemption amounts to RM100 million due by 2HFY21,” HLIB Research continued. “All in all, we remain cautious on its gearingmoving forward as Covid19 will have a durable impact on its retail and hospitality assets increasing cash flow pressure.”