PP 7767/09/2010(025354)

10 March 2010

Corporate Highlights
New s Upda te

RHB Research Institute Sdn Bhd A member of the RHB Banking Group
Company No: 233327 -M


10 March 2010 Share Price Fair Value Recom : : : RM2.72 RM2.10 Underperform (Maintained)

Served A Request For Arbitration Amounting To RM49.5m

Table 1 : Investment Statistics (WCT; Code: 9679) Net FYE Dec 2009 2010f 2011f Turnover (RMm) 4,666.6 2,436.2 2,020.9 Profit# (RMm) 147.1 140.6 130.7 EPS# (sen) 18.8 18.2 16.9 Growth (%) 43.5 (3.0) (7.0) PER (x) 14.1 14.6 15.7 FD EPS# (sen) 17.5 16.4 C.EPS (sen) 21.0 22.0 P/CF (x) 9.6 20.9 23.7 P/NTA (x) 1.6 1.5 1.4 1.3 ROE (%) 11.5 10.2 8.8

Bloomberg: WCT MK Net Gearing (%) 0.2 0.5 0.5 GDY (%) 3.8 2.3 2.3

2012f 1,747.5 134.2 17.4 2.6 15.3 16.8 Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC

23.2 #Excluding EI

8.5 0.4 2.3 * Consensus Based On IBES

Served a request for arbitration by sub-contractor. Bahrain Asphalt Establishment (BAE), a sub-contractor to the 51:49 JV between Gamuda and WCT for the Dukhan Highway project in Qatar, has served the GamudaWCT JV a request for arbitration, claiming a total sum of QAR109.3m (RM101.1m), comprising costs arising from the delay in the completion of the sub-contract (i.e. granular sub-base and flexible pavement works), and certain overcharging and wrongful deductions, coupled with unquantified sums for legal, arbitration and interest costs. WCT is of the opinion that the request for arbitration is pre-mature as the preconditions stipulated in the arbitration clause have not been met, and it has a good defence against the claims.

Issued Capital (m shares) Market Cap(RMm) Daily Trading Vol (m shs) 52wk Price Range (RM) Major Shareholders: EPF Taing KH & Wong SW KWAP FYE Dec EPS Revision (%) Var to Cons (%) FY10 -9 FY11 -23

778.3 2,117.0 3.3 0.985-2.84 (%) 24.2 21.1 6.0 FY12 -17

Potentially 35% dent on FY12/10 EPS. Based on WCT’s 49% share of PE Band Chart the total sum claimed (before legal, arbitration and interest costs) of RM49.5m, the potential loss to WCT is 6.4sen/share that will put a 35% PER = 19x PER = 15x dent to our projected FY12/10 EPS of 18.2sen for WCT. PER = 11x Forecasts. Maintained pending the outcome of the arbitration. Risks to our view. The risks include: (1) New contracts secured in FY12/10-11 coming in above our target of RM1.5bn per annum; and (2) Better-than-expected construction margins. Sector’s best case priced in. On the big picture, while a rosy picture for the construction sector has been priced in based on construction stocks’ current rich valuations, it is still far from being a reality, especially so after a slew of negative developments including reduced gross development expenditure in 2010, Dong’s devaluation, the Dubai credit crisis and the seemingly declining dominance of the big boys in large-scale projects. We believe the market has under-appreciated two other key risks as well, namely: (1) Possible delays in project implementation; and (2) Sub-par margins due to stiff competition. Maintain Underperform. We believe the share price has priced in the earnings buffer from WCT’s RM3.2bn outstanding construction orderbook (see Table 2). Indicative fair value is RM2.10 based on 12x fully-diluted FY12/10 EPS of 17.5sen, in line with our benchmark 1-year forward target PER of 10-14x for the construction sector.
Please read important disclosures at the end of this report.
Relative Performance To FBM KLCI
PER = 7x

♦ ♦ ♦



Joshua CY Ng (603) 92802151

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10 March 2010

Table 2: Outstanding Construction Orderbook Project Overseas New Doha International Airport, Qatar Hotel fit-out works at Bahrain City Centre Marina landside facilities, Yas Island, Abu Dhabi Others

Outstanding Value (RMm) 371 352 42 31 796

Local Infrastructure works at Iskandar Malaysia The Paradigm and other internal jobs New permanent LCCT at KLIA, Earthwork Package 1 Various building jobs in Putrajaya Bakun dam Kota Kinabalu International Airport Universiti Teknologi Mara Campus in Kuala Selangor AEON mall in Melaka Others Total Source: Company, RHBRI

732 717 363 326 92 48 36 28 73 2,415 3,211

Table 3: Earnings Forecasts FYE Dec (RMm) FY09a Turnover Turnover growth (%) EBITDA EBITDA margin (%) Depreciation Net Interest Associates EI 4,666.6 25.7 254.1 5.4 -10.0 -50.3 17.2 0.0

FY10F 2,436.2 -47.8 214.5 8.8 -10.0 -42.6 10.0 0.0

FY11F 2,020.9 -17.0 201.0 9.9 -10.0 -40.7 10.0 0.0 160.3 -29.6 130.7 0.0 130.7

FY12F 1,747.5 -13.5 202.0 11.6 -10.0 -39.1 10.0 0.0 162.9 -28.7 134.2 0.0 134.2

Table 4: Forecast Assumptions FYE Dec FY10F Construction EBIT margin (%) New orderbook secured (RMbn) 6.1 1.5

FY11F 6.7 1.5

FY12F 8.0 1.5

Pretax Profit 211.1 171.9 Tax 4.8 -31.3 PAT 215.9 140.6 Minorities -68.8 0.0 Net Profit 147.1 140.6 Source: Company data, RHBRI estimates

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction. “Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports. This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel. The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues. The recommendation framework for stocks and sectors are as follows : -

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10 March 2010

Stock Ratings Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months. Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks. Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months. Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months. Industry/Sector Ratings Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months. Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months. Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months. RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities, subject to the duties of confidentiality, will be made available upon request. This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the actions of third parties in this respect.

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