WCT - Clinches RM766m jobs in Iskandar Malaysia

WCT has secured four contracts worth RM766.5m, awarded by Iskandar Investment Berhad (subsidiary of Khazanah), to undertake infrastructure works in Medini, Iskandar Malaysia. The works comprise earthwork, drainage, roads, infrastructure works, sewerage pumping station, electricity sub-stations and 33KV main distribution sub-stations. The project is expected to start in 2009 and be completed by 2011.

We estimate the job will add RM61.3m to WCT’s pre-tax profit (PBT) - RM24.5m (+12.2%) in 2009, and RM18.4m each (+9.7% and +9.1%) in 2010 and 2011, assuming 8% PBT margin.

RM1b job win target for 2009 now an easy target, now that WCT has clinched the RM766m job. In addition, we understand that WCT is waiting for two Letter of Intent (LOI) jobs in Sabah totalling RM500m to be converted into Letter of Award (LOA) by end-09. Should this materialise, WCT’s orderbook will increase to RM3.5b from RM3b currently.

Orderbook replenishment looks promising in 2010. The third LOI (estimated at RM2b) for an infrastructure job in Sabah could also boost earnings growth in 2010-11. Furthermore, the Group is also scouring for other mega projects such as an extension of two LRT lines worth RM8b-10b.

We maintain our net profit forecasts as we have already factored in RM1b of new orders for 2009, above WCT’s ytd contract wins of RM766m. However, we acknowledge the rising probability of earnings upgrades for 2010-11, as the government appears to be expediting the tender and award process for key mega projects like the LCCT and LRT extension.

Upgrade to HOLD. We raise our fair price to RM2.30 (from RM1.46) to reflect WCT’s potential to clinch more mega projects. Our fair price is based on 14x 2010 PE target, which is +1 standard deviation above the long-term mean PE, taking into account higher PEs during construction upcycle. The target is also in line with the construction sector’s average PE of 14-15x.

We raise our fair price to RM2.30 as 2009’s RM1b orderbook target replenishment looks “surpass-able” after the new contract win. Expect more mega contract wins (eg Sabah infrastructure works).