By Stephanie Jacob
Kenanga Research has downgraded WCT Holdings Bhd after its third quarter for financial year 2015 (3Q15) core nett profit came in below expectations. WCT recorded a core nett profit of RM28 million for the quarter under review which was a 73% drop year-on year.
The research house said the disappointing results were caused by several factors, namely “an overly aggressive recognition assumption on its progressive billings for its outstanding orderbook, the lower-than-expected construction margin and higher-than-expected financing costs”.
Although WCT has an outstanding orderbook of RM4.3 billion, which will provide three years of good visibility, Kenanga said there are concerns over the execution of these contracts as labour issues could further pressure construction margins.
Kenanga has lowered its FY15 to FY16 core nett profit forecasts by 74% to 48% or by RM39.3 million to RM84.2 million. It said “in our earnings revision, we pushed back some of WCT’s construction billings, lowered construction margins, and increased financing cost”.
On a positive note, Kenanga raised its orderbook replenishment assumptions for WCT by another RM1 billion as WCT is still looking to secure more earthworks and building-related projects in 2016.
In line with the earnings downgrade, Kenanga has lowered its sum-of-parts target price to RM1.51 from RM1.81 previously, which translates into a 20% discount. The target price represents a forward price-earnings ratio of 21.6x.
Kenanga said this valuation makes WCT expensive compared to other big cap construction companies and downgraded the stock’s rating to “market perform” from “outperform”.
As at 11.10am on Bursa Malaysia, WCT was trading up by 1 sen at RM1.52.
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