Written by Financial Daily
Tuesday, 04 August 2009 13:59
OSK Research maintained its buy call on WCT BHD [ WCT 2.740 -0.060 (-2.143%) Stock Summary
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] at RM2.70 with an upward revision on its FY09 to FY11 earnings by 3% to 6% to account for its new job for the New Doha International Airport (NDIA).
“The additional sum is to account for additional works and variation orders. We believe that margins from the job could range from 10% to 11%. Our FY09–11 earnings are raised by 3% to 6%. In light of continued positive news for WCT, we are also raising our earnings multiplier and raising our target price to RM3.24 from RM2.90,” it said.
Last Friday, WCT announced that the Sinohydro-Gamuda-WCT joint venture (JV) had received an award for additional works for the NDIA. The 760 million Qatari rial (RM740 million) job was awarded by the NDIA steering committee.
While the award came as no surprise, OSK said the value of the contract was somewhat disappointing as Gamuda had previously guided for a value of RM1 billion. It noted that the initial value of the project when awarded in July 2005 was RM1.8 billion and was subsequently increased to RM2.6 billion earlier this year.
“With the recent addition of works, the entire project value now stands at RM3.3 billion at the JV level. We gather that the bulk of actual works will be executed mainly by Gamuda and WCT on a 50:50 basis.
“We believe that margins for the job could range from 10% to 11% at the profit before tax level since WCT has always guided that its Middle Eastern jobs would yield such margins. The additional sum awarded is to account for additional works required and variation orders,” it said, adding that the target completion date of the NDIA project was now set for January 2011.
However, it cautioned that in view of last Friday’s share price run-up, the market reaction to the announcement may be slightly negative.
OSK also increased its earnings multiplier to 18 times from 15 times, on expectation of favourable CONSTRUCTION [ CONSTRUCTION 226.610 -0.190 (-0.084%) ] news to come WCT’s way. It said WCT’s potential jobs included a sizeable job from Sabah worth more than RM1 billion and a strong participating chance in the new low-cost carrier terminal (LCCT) of about RM2 billion.
Meanwhile, Inter-Pacific Research maintained its neutral stance on WCT.
It said WCT’s portion of the project which involved the provision of airfield paving, tunnel and detention ponds for the airport, was worth some RM362.6 million based on its 49% stake in the JV. It said this project would bring WCT’s outstanding order book up to RM3.3 billion from RM2.9 billion which would keep them busy till 2011.
Inter-Pacific added that WCT would also likely be awarded infrastructure works in Sabah totalling RM500 million, which were at the letter of intent stage, and was in a good position to secure works for the LRT extension project worth about RM7 billion to RM10 billion.
“For now, we are inputing their order book replenishment of RM1.9 billion for FY09 from RM1.5 billion previously and RM1.5 billion for FY10 into our forecasts. To date, WCT secured about RM1.4 billion worth of contracts this year,” it said.
The research house upgraded its earnings forecast by 9.5% for FY10 after raising WCT’s order book replenishment assumption.
“We reiterate neutral with a revised fair value of RM2.90 based on higher price-earnings ratio (PER) of 14 times and FY10 earnings per share of 20.8 sen following improving market sentiment,” it said.
WCT added 10 sen at yesterday’s close to RM2.80.
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