KUALA LUMPUR (March 19): Hong Leong Investment Bank (HLIB) Research has cut its earnings forecasts and target price (TP) for WCT Holdings Bhd.
In a note today, the research house said that it is cutting its earnings forecasts for WCT’s financial year ending Dec 31, 2021 (FY21) and FY22 by 5.1% and 14.3% respectively after adjusting for poorer margin and billing assumptions.
The research house is forecasting that WCT will make RM52.2 million in FY21 as core profit after tax and minority interests (PATAMI) and RM55.4 million for FY22.
While HLIB maintained its "hold" call on the stock at 56.5 sen, it cut its target price (TP) to 61 sen, from 64 sen, following a 20% discount to its sum-of-parts (SOP) valuation at 76 sen.
Additionally, the TP implies FY21-22 price-earnings (P/E) ratios of 16.4 times and 15.5 times respectively.
“While WCT is poised to recover gradually along with declining [Covid-19] cases, we reckon this is largely priced in, [with it] trading at FY21-22 P/E multiple of 15.3 times/14.5 times,” it said.
Following an analyst briefing yesterday, HLIB said that WCT’s outstanding order book stood at RM5 billion with a cover ratio of four times. It recently clinched an RM137 million contract for hotel and office superstructure works at the Tun Razak Exchange (TRX).
The FY21 job win target for WCT stands at RM7 billion, backed by over RM10 billion worth of submitted tenders (of which RM4 billion come from building works). In the near term, infrastructure opportunities will be centred in Sabah, particularly the Pan Borneo Highway.
It was also noted that the management expects a potential RM400 million reward for airport expansion.
“4QFY20 saw a poor segment performance as WCT marked down project margins across the board (-1% at the earnings before interest and taxes [EBIT] level), further exacerbated by a near two-week disruption to Pavilion DH (52% of its order book). However, 1QFY21 could see an about RM40 million write-back in relation to savings from its Qatari settlement agreement,” it added.
In FY20, WCT sold RM350 million worth of property sales, with unbilled sales standing at RM152 million, representing a depleting 0.4 times cover. It is targeting to get RM1 billion in bookings in FY21 and has secured RM160 million so far this year. Underpinning the sales target would be launches with a combined gross development value (GDV) of RM1.7 billion.
HLIB is forecasting FY21 sales of RM500 million given the current market conditions. The research house added that WCT had also highlighted that land sales of RM133 million were finalised and will be reflected in its 1QFY21 results.
Meanwhile, occupancy of its Gateway mall declined to 87% in 4QFY20 from 91% in 3QFY20, while that of Paradigm Johor Baru declined to 95% in 4QFY20 from 92% in 3QFY20, and SkyPark's also declined to 91% from 92% in 3QFY20. That said, Paradigm Petaling Jaya saw occupancy improve to 98% from 96% in the immediate preceding quarter.
“Occupancy rates might not deteriorate this year as 50% of the expiring 18% of total NLA (net lettable area) [in 2021] had been renewed by early March.
"Additionally, along with expectations of a vaccine-driven recovery, WCT is receiving increasing enquiries from international retailers for some of its assets. Nonetheless, the outlook remains bleak for its hotel side with rates hovering at roughly 20%, and would require significant progress in the vaccine roll-out and interstate travel before a meaningful recovery can be expected,” HLIB noted.
At 10.07am today, WCT had risen 4.43% or 2.5 sen to 59 sen, valuing it at RM836.71 million.