As expected, WCT won the EW1 package for the LCCT (RM363m), for which we expect margins at ~5%, similar to that in the Medini infra job, which it also won on open tender. Profitability should not be a concern given WCT’s strong execution capability. The next major portion of the LCCT is the runway and EW2, for which we see WCT and Gamuda as the top contenders. We envisage more positive news for WCT. Maintain BUY, RM3.30 TP.
Bags earthworks job. Yesterday, it was announced on Bursa that WCT was awarded the earthworks package (EW1) for the new Low Cost Carrier Terminal (LCCT) at KL International Airport, Sepang. The RM363m job was awarded by Malaysian Airports Holdings (MAHB) (TRADING BUY, TP: RM4.22) on an open tender basis (8 contractors tendered). We highlighted the strong likelihood of WCT winning this job in our previous sector report entitled LCCT Jobs Award Soon dated 13 Nov 2009.
The job scope. We understand that EW1 comprises the earthworks for the main terminal building, taxiway and parking apron. Given its targeted completion date of 1 Jan 2011(~1 year), the project is one that is fast tracked. According to MAHB officials, the entire LCCT is expected to be completed by 4Q 2011.
Margin expectations. We expect margins to be ~5% (PBT level), based on management’s guidance for the Medini infra job (RM766m), which was also secured on open tender. There are, however, concerns among certain quarters over profitability given that WCT submitted the lowest bid and that the job value is lower than the initially estimated RM400m. We believe this should not be an issue given WCT’s strong execution capability and the fact that most of its domestic jobs have been won on open tender. The group also owns a large fleet of earthworks machinery that can be immediately mobilized for the job.
More to come. We read this award as being a prelude of more mega projects to come. We gather that the next major package of the LCCT is the runway and associated earthworks (EW2), with the top contenders being Gamuda (NEUTRAL, TP: RM2.82) and WCT, given their experience with the New Doha Airport runway. As for the terminal building, our bet is on IJM (NEUTRAL, TP: RM4.55) and Fajarbaru (NR) being potential winners.
Maintain BUY. We have partially accounted for this recent win in our orderbook replenishment assumption. As such, we raise our FY10–11 earnings by an average 3.7%. We assume there would be spillover billings of EW1 into FY11 although the bulk will be completed in FY10. Our TP is raised to RM3.30 based on 15x FY10 earnings. We expect more positive news for WCT, which is one of our top sector picks.
