You are on page 1of 3

21 October 2010

PP 7767/09/2011(028730)
Malaysia
RHB Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

N ew s Updat e
MARKET DATELINE 21 October 2010

WCT Share Price


Fair Value
:
:
RM3.11
RM2.56
Secures RM1.36bn Building Job In Qatar And Recom : Underperform
(Maintained)
RM128m Hospital Project In Sabah

Table 1 : Investment Statistics (WCT; Code: 9679) Bloomberg: WCT MK


Net FD Net
FYE Turnover Profit# EPS# Growth PER EPS# C.EPS P/CF P/NTA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (x) (%) (%) (%)
2009 4,666.6 147.1 18.8 43.5 16.6 - - 11.3 1.9 11.5 0.2 3.2
2010f 2,553.0 148.9 19.3 2.8 16.1 18.4 19.0 22.6 1.7 10.7 0.5 1.9
2011f 2,254.5 147.8 19.1 (0.8) 16.3 18.3 22.0 23.4 1.6 9.8 0.4 1.9
2012f 1,981.1 152.1 19.7 2.9 15.8 18.7 25.0 23.1 1.5 9.4 0.4 1.9
Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC #Excluding EI * Consensus Based On IBES

♦ 3 th and 4th key projects this year. WCT has secured two key contracts, Issued Capital (m shares) 784.3
namely: (1) A QAR1.59bn (RM1.36bn) government administrative building Market Cap(RMm) 2,439.3
job in Doha, Qatar; and (2) The Tuaran hospital project in Sabah worth Daily Trading Vol (m shs) 1.9
52wk Price Range (RM) 2.41-3.20
RM127.8m. The latest contracts are the 3rd and 4th key jobs WCT has
Major Shareholders: (%)
secured this year, boosting its YTD new contracts secured to RM2.1bn (see
EPF 21.4
Table 2) and its outstanding construction orderbook by 53% to RM4.3bn
Taing KH & Wong SW 20.6
(see Table 3). Assuming an EBIT margin of 8-10%, the latest contracts will KWAP 7.1
fetch RM119-149m EBIT over the construction period ending Apr/May 2013.
While we are positive on the latest development, we expect limited reaction FYE Dec FY10 FY11 FY12
from the market as WCT had been hinting on the Qatar job for a while by EPS Revision (%) +6 +13 +13
Var to Cons (%) +1 -13 -21
now.

♦ Forecasts. We are raising FY12/10-12 net profit forecasts by 6-13%,


PE Band Chart

having reflected RM2.1bn new contracts secured in FY12/10 vis-à-vis our


PER = 19x
previous assumption of RM1.5bn. PER = 15x
PER = 11x
♦ Risks to our view. The risks include: (1) New contracts secured in PER = 7x

FY12/11-12 coming in above our target of RM1.5bn per annum; and (2)
Better-than-expected construction margins.

♦ Maintain Underperform. We are upbeat on construction stocks as we


believe they will continue to generally outperform the market from 4Q2010, Relative Performance To FBM KLCI
buoyed by news flow from: (1) The infrastructure development for the
Greater KL National Key Economic Area (NKEA) under the Economic WCT
Transformation Programme (ETP), particularly, the RM40bn MRT project;
(2) The RM7bn Ampang and Kelana Jaya LRT line extension project; and (3)
FBM KLCI
Federal land deals. WCT, via WCT – Synohydro JV, has been pre-qualified
to bid as main contractor and segmental box girder sub-contractor for the
Ampang and Kelana Jaya LRT line extension project. However, WCT’s
valuations remain not compelling, despite an 11% upgrade in our indicative
fair value from RM2.30 to RM2.56 based on 14x revised fully-diluted
FY12/11 EPS of 18.3sen, in line with our benchmark 1-year forward target
PER of 10-16x for the construction sector. Joshua CY Ng
(603) 92802151
joshuang@rhb.com.my

Please read important disclosures at the end of this report.

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 1 of 3
available for download from www.rhbinvest.com
21 October 2010

Table 2: New Contracts Secured So Far In FY12/10


Project Value
(RMm)
Hotel fit-out works at Bahrain City Centre (additional work) 110
Integrated Complex, KLIA2 486
Government administrative building, Doha, Qatar 1,360
Tuaran Hospital, Sabah 128
Total 2,084
Source: Company, RHBRI

Table 3: Outstanding Construction Orderbook


Project Outstanding Value
(RMm)
Overseas
Government administrative building, Doha, Qatar 1,360
New Doha International Airport, Qatar 173
Hotel fit-out works at Bahrain City Centre 238
Others 23
1,794
Local
The Paradigm and other internal jobs 668
Integrated Complex, KLIA2 486
Infrastructure works at Iskandar Malaysia 481
Various building jobs in Putrajaya 252
New permanent LCCT at KLIA, Earthwork Package 1 203
Tuaran Hospital, Sabah 128
Bakun dam access roads 80
Kota Kinabalu International Airport 36
Universiti Teknologi Mara Campus in Kuala Selangor 36
AEON mall in Melaka 28
Others 89
2,487
Total 4,281
Source: Company, RHBRI

Table 4: Earnings Forecasts Table 5: Forecast Assumptions


FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 4,666.6 2,553.0 2,254.5 1,981.1 Construction EBIT margin (%) 6.2 6.9 8.0
Turnover growth (%) New orderbook secured 2.1 1.5 1.5
25.7 -45.3 -11.7 -12.1 (RMbn)

EBITDA 254.1 223.8 219.7 220.7


EBITDA margin (%) 5.4 8.8 9.7 11.1

Depreciation -10.0 -10.0 -10.0 -10.0


Net Interest -50.3 -42.3 -39.7 -37.0
Associates 17.2 10.0 10.0 10.0
EI 0.0 0.0 0.0 0.0

Pretax Profit 211.1 181.5 180.0 183.6


Tax 4.8 -32.6 -32.2 -31.6
PAT 215.9 148.9 147.8 152.1
Minorities -68.8 0.0 0.0 0.0
Net Profit 147.1 148.9 147.8 152.1
Source: Company data, RHBRI estimates

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 2 of 3
available for download from www.rhbinvest.com
21 October 2010

IMPORTANT DISCLOSURES

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 : -

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.

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 3 of 3
available for download from www.rhbinvest.com