20 August 2010

PP 7767/09/2010(025354)
Malaysia Corporate Highlights
RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
20 August 2010
MARKET DATELINE

WCT Share Price

Fair Value
:
:
RM2.82
RM2.30
1HFY12/10 Net Profit Declines 15% YoY Recom : Underperform
(Maintained)

Table 1 : Investment Statistics (WCT; Code: 9679) Bloomberg: WCT MK

Net FD Net
FYE Turnover Profit# EPS# Growth PER EPS# C.EPS P/CF P/NTA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (x) (%) (%) (%)
2009 4,666.6 147.1 18.8 43.5 15.0 - - 10.2 1.7 11.5 0.2 3.5
2010f 2,436.2 140.6 18.2 (3.0) 15.5 17.5 19.0 22.2 1.6 10.2 0.5 2.1
2011f 2,020.9 130.7 16.9 (7.0) 16.7 16.4 23.0 25.2 1.5 8.8 0.5 2.1
2012f 1,747.5 134.2 17.4 2.6 16.2 16.8 24.0 24.7 1.4 8.5 0.4 2.1
Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC #Excluding EI * Consensus Based On IBES

♦ Missed consensus. 1HFY12/10 net profit came in within our expectation RHBRI Vs. Consensus
Above
at 49% of our full-year forecast but missed the market expectation at only
In Line
44% of the full-year market consensus. Below
♦ RM2bn new orderbook guidance stands. During the results briefing in
Issued Capital (m shares) 783.5
May 2010, WCT maintained its RM2bn new orderbook guidance in FY12/10,
Market Cap(RMm) 2,209.5
despite having only secured one project amounting to RM110m YTD, Daily Trading Vol (m shs) 1.9
namely, a 50% share of Bahraini Dinar 24m (RM220m) additional fit-out 52wk Price Range (RM) 2.41-3.02
works for Bahrain City Centre hotels. WCT did not give specific guidance as Major Shareholders: (%)
to the contracts it is confident of securing but it did mention that it is EPF 21.9
bidding “aggressively” for certain “local contracts awarded on an open Taing KH & Wong SW 21.0
tender basis” and overseas infrastructure jobs in Qatar and Abu Dhabi. In KWAP 7.2

FY12/09, WCT secured RM1.9bn worth of new jobs. In our earnings

FYE Dec FY10 FY11 FY12
forecasts, we assume annual new orderbook targets of RM1.5bn in EPS Revision (%) - - -
FY12/10-12. Var to Cons (%) -4 -26 -28

♦ Forecasts. Maintained. PE Band Chart

♦ Risks to our view. The risks include: (1) New contracts secured in
FY12/10-12 coming in above our target of RM1.5bn per annum; and (2) PER = 19x
PER = 15x
Better-than-expected construction margins. PER = 11x
PER = 7x
♦ Maintain Underperform. We are upbeat on the construction sector as we
foresee construction stocks to generally outperform the market in 2H2010,
buoyed by news flow, particularly, from: (1) The RM36bn KL MRT project;
(2) The RM7bn Ampang and Kelana Jaya LRT line extension project; and (3)
Federal land deals. However, upside in WCT’s share price is capped by rich Relative Performance To FBM KLCI
valuations. Indicative fair value is RM2.30 based on 14x fully-diluted
FY12/11 EPS of 16.4sen, in line with our benchmark 1-year forward target
PER of 10-16x for the construction sector.
FBM KLCI

WCT

Joshua CY Ng
Please read important disclosures at the end of this report. (603) 92802151
joshuang@rhb.com.my

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Table 2: Earnings Review (YoY Cumulative)

FYE Dec 2009 2010 YoY Observations/Comments
(RMm) 6M 6M Chg
Turnover 2,146.9 913.7 (57%)
Construction 2,159.6 835.7 (61%) Lumpy overseas jobs at tail-ends.
Property 77.4 114.3 48% Reflective of the recovery in the property market.
Others 34.4 0.0 nm
Elimination (124.4) (36.4) (71%)
EBIT 158.9 127.2 (20%) Lower construction profits, partially cushioned improved property profits.
Construction 150.1 86.8 (42%) Lumpy overseas jobs at tail-ends, partially cushioned by improved margins.
Property 24.4 45.8 87% Reflective of the recovery in the property market.
Others 4.7 0.0 nm
Elimination (20.3) (5.3) (74%)
Net inc/(exp) (27.4) (23.6) (14%)
Associates 8.3 2.2 (74%)
Pretax profit 139.8 105.8 (24%) Lumpy overseas jobs at tail-ends, new local contracts had yet to hit
significant billing milestones to fill up the vacuum.
Taxation 1.3 (30.7) nm
Minority interest (60.0) (6.4) (89%)
Net profit 81.2 68.7 (15%) Lumpy overseas jobs at tail-ends, new local contracts had yet to hit
significant billing milestones to fill up the vacuum.
EPS (sen) 10.4 8.7 (16%)

Construction EBIT margin* 7.0% 9.7% 2.8% pts As cost pressure eased. Also, we believe there was lumpy one-off write-back
of over-provision in 1QFY10.
EBIT margin 7% 14% 7% pts
Pretax margin 7% 12% 5% pts
Effective tax rate (1%) 29% 30% pts We believe due to less tax-free profits from projects in the Gulf states.
*Adjusted for inter-company elimination

Table 3: Earnings Review (QoQ)

FYE Dec 2010 2010 QoQ Observations/Comments
(RMm) 1Q 2Q Chg
Turnover 400.1 513.6 28%
Construction 368.6 467.2 27% We believe driven by earthwork jobs in Iskandar and LCCT.
Property 51.9 62.4 20% Reflective of the recovery in the property market.
Elimination (20.4) (16.0) (21%)
EBIT 60.3 66.8 11% Driven largely by stronger property profits.
Construction 43.3 43.4 0% Strong topline growth offset by lower margins.
Property 16.1 29.7 85% Reflective of the recovery in the property market.
Elimination 0.9 (6.3) nm
Net inc/(exp) (11.7) (11.9) 2%
Associates 2.4 (0.3) nm
Pretax profit 51.1 54.7 7%
Taxation (13.3) (17.3) 30%
Minority interest (2.8) (3.6) 27%
Net profit 34.9 33.8 (3%) Eroded by a higher effective tax rate.
EPS (sen) 4.5 4.3 (4%)

Construction EBIT margin* 12.0% 8.0% (4.1% pts) High base in 1Q, we believe, due to lumpy one-off write-back of over-
provision.
EBIT margin 15% 13% (2% pts)
Pretax margin 13% 11% (2% pts)
Effective tax rate 26% 32% 6% pts
*Adjusted for inter-company elimination

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Table 3: Outstanding Construction Orderbook

Project Outstanding Value
(RMm)
Overseas
New Doha International Airport, Qatar 321
Hotel fit-out works at Bahrain City Centre 302
Others 35
658

Local
The Paradigm and other internal jobs 705
Infrastructure works at Iskandar Malaysia 617
Various building jobs in Putrajaya 301
New permanent LCCT at KLIA, Earthwork Package 1 265
Bakun dam access roads 84
Kota Kinabalu International Airport 42
Universiti Teknologi Mara Campus in Kuala Selangor 36
AEON mall in Melaka 28
Others 72
2,150
Total 2,808
Source: Company, RHBRI

Table 4: Earnings Forecasts Table 5: Forecast Assumptions

FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 4,666.6 2,436.2 2,020.9 1,747.5 Construction EBIT margin (%) 6.1 6.7 8.0
Turnover growth (%) New orderbook secured 1.5 1.5 1.5
25.7 -47.8 -17.0 -13.5 (RMbn)

EBITDA 254.1 214.5 201.0 202.0

EBITDA margin (%) 5.4 8.8 9.9 11.6

Depreciation -10.0 -10.0 -10.0 -10.0

Net Interest -50.3 -42.6 -40.7 -39.1
Associates 17.2 10.0 10.0 10.0
EI 0.0 0.0 0.0 0.0

Pretax Profit 211.1 171.9 160.3 162.9

Tax 4.8 -31.3 -29.6 -28.7
PAT 215.9 140.6 130.7 134.2
Minorities -68.8 0.0 0.0 0.0
Net Profit 147.1 140.6 130.7 134.2
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over
a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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