Analysts positive on WCT-CCCC JV Sapangar Bay Container Port contract
Analysts were positively surprised when WCT Bhd (WCT) and China Communications Construction Company (CCCC) in a 60:40 joint venutre (JV) recently secured a RM899.8 million contract from the Malaysian government to undertake the expansion of Sapangar Bay Container Port in Sabah.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), the contract came as a positive surprise for two reasons.
“First, we had expected public project roll-outs to be held back amidst the height of this pandemic and secondly, WCT’s effective win of RM540 million (60 per cent stake) brings cumulative year to date (YTD) replenishment to RM1.12 billion; surpassing our RM1 billion target (but still within management’s RM2 billion guidance),” Kenanga Research said in company update on WCT.
“Consequent to this contract, we increase our order-book replenishment target by 20 per cent to RM1.2 billion.
“We still keep our replenishment below management’s RM2 billion guidance because we think the other sizeable tenders targeted by WCT such as the Pan Borneo Sabah and Sabah Sarawak Link Road are unlikely to be awarded this year as the government would likely conserve funds to prioritise pandemic assistance packages.”
The research arm noted that the funds for the Sapangar Bay Port expansion project had been allocated by the federal government since 2016 under the 11th Malaysian Plan.
In tandem with the higher financial year 2021 (FY21E) replenishment target of RM1.2 billion for WCT, Kenanga Research increased FY22E earnings by three per cent to RM84 million.
The research arm had assumed an eight per cent earnings before interest and tax (EBIT) margin for this newly won contract.
“Post win, outstanding orderbook stood at RM5.7 billion (3.5fold cover).”