WCT buoyed by latest contract success
17 July 2024
PETALING JAYA, 17 JULY 2024 - Interest in WCT Holdings Bhd’s shares grew after the construction and property development group secured its latest contract worth RM214mil.
The company’s shares rose five sen, or 4.5%, to close at RM1.16 yesterday, off an intra-day high of RM1.22. The increase in WCT’s share price also came in tandem with several brokerages raising their target prices for the counter following the announcement of the latest contract win.
CGS International Research (CGSI Research), for instance, raised its target price for WCT to RM1.52 from RM1 previously.
Reiterating its “add” recommendation on the counter, the brokerage said the higher target price was to account for the rolling of its valuation base year to 2025 and the higher sustainable order book of RM4.5bil on higher price-earnings ratio of 18 times, as compared with 14 times previously.
WCT on Monday announced it had been awarded a RM214mil job from Kwasa Land Sdn Bhd for the common infrastructure works phase 1 and new vehicular underpass at the Kwasa Damansara Township Development.
The project is slated for completion within 30 months from Aug 1, 2024.
Representing WCT’s second win in 2024 after the RM250mil PLUS line widening job won in June, the latest contract brought the group’s year-to-date win to RM461mil and total order book as at July 2024 to RM2.9bil.
“We are encouraged that WCT is once again winning jobs after zero contract wins recorded in 2022 and 2023. Over 2015 to 2021, it managed to clinch RM1.1bil to RM3bil new wins per annum,” CGSI Research said.“Other potential projects in the pipeline for WCT are the Penang Airport expansion, Penang light rail transit (LRT) and the Subang Airport Regeneration Plan (SARP), which should help it achieve or exceed its RM2bil new order target for 2024,” it added.
TA Research estimated that the latest contract win would contribute a net profit of RM8.1mil throughout the construction period, based on an assumed pre-tax profit margin of 5%.
Upgrading its call to “buy” from “hold”, the brokerage also raised its target price for WCT to RM1.52 from 83 sen previously.
“We raise our target price by shifting our valuation methodology to a 0.65 times price-to-book multiple against its 2025 book value per share. The shift in valuation methodology better reflects the deep value embedded in WCT’s investment property assets,” it explained.
“We believe WCT’s decision to establish and list a real estate investment trust (REIT) will unlock the value of these investments,” it added.
TA Research further noted that WCT remained a strong contender for upcoming mega-infrastructure projects, including the Penang International Airport expansion, Penang LRT and SARP.
Kenanga Research raised its target price for WCT to 95 sen from 88 sen previously, but downgraded its call to “underperform” from “outperform”, citing rich valuations.
“We believe WCT is poised for a better 2024 on the impending roll-out of various public infrastructure projects,” the brokerage said.
“We raise our 2024 to 2025 earnings forecasts by 50% and 106%, respectively; as we lift our 2024 job win assumption to RM2bil, in-line with the company’s guidance. We maintain our 2025 job win assumption at RM1.5bil,” it added.
Kenanga Research noted the outlook for WCT remained positive on improved prospects in the local construction sector amid the anticipated roll-out of public projects, the recovery in its construction profits with the completion of low-margin legacy projects and a potential re-rating on a lower risk premium as it de-gears it balance sheet via land disposals as well as the listing of its investment properties via a REIT.
Nonetheless, it downgraded its call to “underperform”, as WCT’s “share price has run ahead of its fundamentals”, it said.
Hong Leong Investment Bank Research (HLIB Research) kept its “buy” call on WCT, with an unchanged sum-of-parts based target price of RM1.48.
“We had earlier highlighted a noticeable increase in its tender value submitted and pending submission from around RM12bil to more than RM20bil – driven by domestic civil and infrastructure space, including Penang Airport.
“We reckon it is reasonable to assume that more of these tenders will come to an award decision in the coming months,” HLIB Research said, adding that WCT’s REIT monetisation could allow de-gearing to a much more sustainable level.
Meanwhile, MIDF Research maintained its “neutral” call on WCT for now, while putting its target price of 97 sen under review.
“While prospects remain bright for the construction sector for WCT to replenish more jobs, the recent rise in its share price by close to 90% since June 2024, has stretched its valuations,” it explained.
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