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Monday, August 27, 2012

WCT impresses analysts

Company deemed good prospects with RM4bil order book and projects

DESPITE WCT Bhd's 19% decline in earnings before interest and taxes year-on-year in the first half of financial year 2012, it is a favourable player in the construction sector, with 87.5% of research analysts calling it a “buy”.

With an outstanding order book of about RM4bil, it is not hard to understand why. On the property front, its gross development value (GDV) was also given a lift to about RM12bil with its latest purchase that came as a “positive surprise”, according to an analyst.

Its latest proposed acquisition announced on Aug 23 is a deal between its indirect subsidiary WCT Hartanah Jaya Sdn Bhd and Idaman Usahamas Sdn Bhd, a unit of Malaysia Building Society Bhd. The 12 acres in Tebrau, Johor Baru that comes with an abandoned shopping podium will be bought for a consideration of RM180mil. The freehold land is proposed for mixed development with a GDV of RM900mil.

About a week before that, it has announced that its tender for the construction and completion of Batinah Expressway Package 2 in Oman was accepted. Winning this bid via its 80:20 joint venture with Oman Roads Engineering Co LLC means it has bagged a contract worth RM1bil and would contribute positively to its earnings for this financial year until the financial year ending 2015. The 44.75km expressway is expected to be completed in three years.

These are two of the latest developments that continue to put the company in a positive light. Looking at some of its other outstanding jobs, it has a government administrative office project and New Doha International Airport in Qatar. Locally, it has PLUS Highway widening works, KL International Airport 2 (KLIA 2) earthworks, the Medini Iskandar contract and others. WCT has also secured contracts from Vale Malaysia Manufacturing Sdn Bhd for jobs at the latter's iron ore hub in Teluk Rubiah, Perak. It also has in hand building projects such as the Kota Kinabalu Medical Centre and Riverson and the International Trade and Industry Ministry headquarters.

That is not all. The company has a order book of about RM4bil. Some of the good prospects, according to analysts, include earthwork packages for Pengerang Rapid in Johor, Tun Razak Exchange projects in Kuala Lumpur, a teaching hospital in Sabah and the United Arab of Emirates expressways. It is also in the running for contracts from the My Rapid Transit and Langat 2 water treatment plant projects.

From its property development arm, projects include its RM4bil mixed development in Overseas Union Garden, Kuala Lumpur. In Rawang, Selangor, it is developing a township with a gross development value of RM1.5bil. Prior to that, it has developed its flagship township development in Bandar Bukit Tinggi, Klang. It chalked up property sales in the first half of RM376mil while its unbilled sales stood at RM563mil.

As for recurring income, it has built pipelines from construction concessions on one hand and rental yield from its shopping malls on the other. The Paradigm Mall which was completed since May is considered a success due to its high occupancy rate of about 97%. Its Premiere Hotel in Klang completed since 2010 has 250 rooms and it is opening up another 350-room hotel at Paradigm which is expected to be ready in 2014.

However, it was not rosy all the way. Just a year ago, WCT's construction business was lacklustre. The company is still in a legal tussle with Meydan LLC over a terminated racecourse in 2009. The financial impact following the outcome of the proceedings remains unknown. Its better performance this year is described as a comeback.

With the opportunities available from the Economic Transformation Programme plus the 10th Malaysia Plan and good take-up rate for its property segment, analysts are bullish about the company. A check from Bloomberg's data showed that 87.5% of the analysts have given it a “buy” call, with RM3.22 as a 12-month consensus target price.

The counter was lowest on Jan 15 at RM2.18 and it reached a peak of RM2.78 on Feb 9 this year. Year to date (YTD), as of Aug 24, the stock increased 18.94% from RM2.27 to RM2.70. At this rate, it is outperforming the FBM KLCI which has increased 8.92% YTD.

By The Star

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