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Friday, August 15, 2008

WCT’s margins feeling the pressure

PETALING JAYA: Construction and property company WCT Bhd’s margins are under pressure due to escalating building material prices with a quarter-on-quarter contraction in construction earnings before interests and tax margins to 6.2% from 8.3%.

OSK Research analyst Jeremy Goh said in a research note that year-on-year cumulative margins had contracted at all levels with the exception of net margins, which came in at 5.4% compared to 4.6% last year due to earnings from foreign subsidiaries not subjected to taxation.

“Management indicates that the pinch was felt the most for local construction jobs. However, due to the stronger recognition of property sales, overall margins were still up on a quarter-on-quarter basis,” he said, adding that results for the first half of 2008 (1H08) were also 15.7% below house and 14.5% below consensus estimates.

The company also face currency translation issues for the US$1.3bil (RM4.6bil) Meydan Racecource project in Dubai, a 50:50 joint venture with Arabtec Construction LLC. Goh said WCT’s share of the project, which came in at RM2.3bil, was now revised down to RM2.1bil due to the currency translation.

“As of 1H08, billings for the newly revised Meydan Racecourse value sums to 12%. In terms of actual physical works, the job is currently 34% complete. We reckon that revenue recognition will pick up further next quarter,” he said.

Goh, which maintained a “buy” on the stock, said the target price (TP) of RM3.90 has been trimmed to RM3.83 due to the changing value of the Meydan Racecourse project. He said there was a risk that the TP might be reduced pending further developments at an analysts’ briefing called by the company Friday.

By The Star (by Fintan Ng)

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