23 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

B r ief ing Not e

23 August 2010
MARKET DATELINE

WCT Share Price

Fair Value
:
:
RM2.82
RM2.30
Super Confident Of Meeting RM2bn New Orderbook Recom : Underperform
(Maintained)
Guidance For FY12/10

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

♦ RM2bn new orderbook guidance stands. WCT is super confident of Issued Capital (m shares) 783.5
meeting its RM2bn new orderbook guidance for FY12/10. It hinted a big job Market Cap (RMm) 2,209.5
from the Gulf states and “something” from the new LCCT project. It went Daily Trading Vol (m shs) 1.9
to the extent of saying that “You will not call us a liar when you come for 52wk Price Range (RM) 2.41-3.02
the next briefing in three months’ time”. Major Shareholders: (%)
EPF 21.9
♦ Sabah contract, LRT and Langat 2 not in 2010. The RM2bn new Taing KH & Wong SW 21.0
orderbook in 2010 will exclude potential work packages from: (1) The KWAP 7.2
RM2.8bn Kota Kinabalu Water Supply Phase III also known as the Kaiduan
Dam; (2) The RM7bn Ampang and Kelana Jaya LRT line extention project; FYE Dec FY10 FY11 FY12
EPS Revision (%) - - -
and (3) The RM4.1bn Langat 2 water treatment plant. WCT believe these
Var to Cons (%) -4 -26 -28
three projects are unlikely to materialise by 2010.
♦ Impact from Bakun still unclear. The impact on WCT arising from lead PE Band Chart
consortium member Sime Darby making an additional RM450m loss
PER = 19x
provision on the Bakun project recently remains unclear. The key issue PER = 15x
remains to be if the losses were incurred at the Sime Darby or consortium PER = 11x
PER = 7x
level. If the losses were deemed to be incurred at the consortium level,
WCT’s share of additional provision would be RM34.7m, translating to
4.4sen/share that would erode our FY12/10 EPS forecast for WCT by 24%.
♦ Forecasts. Maintained.
Relative Performance To FBM KLCI
♦ 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)
Better-than-expected construction margins.
♦ Maintain Underperform. We are upbeat on the construction sector as we
WCT
FBM KLCI

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. WCT, via WCT – Synohydro JV, has been pre-qualified
to bid as main contractor and segmental box girder sub-contractor for the
Ampang and Kelana Jaya LRT line extension project. However, upside in
WCT’s share price is capped by rich valuations. Indicative fair value is Joshua CY Ng
RM2.30 based on 14x fully-diluted FY12/11 EPS of 16.4sen, in line with our (603) 92802151
joshuang@rhb.com.my
benchmark 1-year forward target PER of 10-16x for the construction sector.

Please read important disclosures at the end of this report.

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 23 August 2010

Super Confident Of Meeting New Orderbook Guidance Of RM2bn In FY12/10

♦ Highlights. Key takeaways from WCT analysts’ briefing on 20 Aug 2010 are:
1. WCT is super confident of meeting its RM2bn new orderbook guidance for FY12/10. It hinted a big job from the
Gulf states and “something” from the new LCCT project;
2. It guided that the much publicised Sabah contract, as well as LRT and Langat 2 are not likely to happen this
year; and
3. The impact on WCT arising from lead consortium member Sime Darby making an additional RM450m loss
provision on the Bakun project remains unclear.

♦ RM2bn new orderbook guidance stands. WCT is super confident of meeting its RM2bn new orderbook guidance
for FY12/10, despite having only secured RM110m YTD, namely, a 50% share of Bahraini Dinar 24m (RM220m)
additional fit-out works for Bahrain City Centre hotels. It went to the extent of saying that “You will not call us a
liar when you come for the next briefing in three months’ time”. It hinted that “a big chuck” will come from the
Gulf states (possibly Qatar) after the traditionally slow period during the Ramadan month. On the local front, it
hinted that it “may have something” from the new LCCT project. It gave a clue - “the LCCT has to be linked up
with the main terminal” (It was reported that Express Rail Link Sdn Bhd that holds a 30-year concession to operate
the express rail services from KL Sentral to KLIA plans to lay 2km of railway tracks from KLIA to the new LCCT
terminal). Rumours also have it that WCT may be involved in a shopping mall project within the new LCCT’s
vicinity.

♦ Sabah contract, LRT and Langat 2 not in 2010. The RM2bn new orderbook will exclude potential work
packages from: (1) The much publicised RM2.8bn Kota Kinabalu Water Supply Phase III also known as the Kaiduan
Dam (of which WCT’s share of work is believed to be worth about RM1bn); (2) The RM7bn Ampang and Kelana Jaya
LRT line extention project (of which WCT, via WCT – Synohydro JV, has been pre-qualified to bid as main contractor
and segmental box girder sub-contractor); and (3) The RM4.1bn Langat 2 water treatment plant. WCT believe
these three projects are unlikely to materialise by 2010. In FY12/09, WCT secured RM1.9bn worth of new jobs. In
our earnings forecasts, we assume annual new orderbook targets of RM1.5bn in FY12/10-12.

♦ Impact from Bakun still unclear. The impact on WCT arising from lead consortium member Sime Darby (that
holds the largest 35.7% stake in the consortium) making an additional RM450m loss provision on the Bakun project
recently remains unclear. The key issue remains to be if the losses were incurred at the Sime Darby level (as one
of the subcontractors to the consortium) or at the consortium level. If the losses were incurred at the Sime Darby
level, they would be solely the responsibility of Sime Darby and as such there is no need for other consortium
members, i.e. China National Water Resources & Hydropower Engineering Corporation (30%), WCT (7.7%), MTD
Capital (7.7%), Ahmad Zaki Resources (7.7%), Syarikat Ismail Ibrahim Sdn Bhd (7.7%) and Edward & Sons Sdn
Bhd (3.5%), to share out the losses. If the losses were deemed to be incurred at the consortium level, WCT’s share
of additional provision would be RM34.7m (RM450m x 7.7%), translating to 4.4sen/share that would erode our
FY12/10 EPS forecast for WCT by 24%. It is believed that the consortium has hired claims consultants to help to
resolve the matter. WCT acknowledged that it is not a good idea to have its full-year FY12/10 accounts qualified by
the auditors due to the Bakun issue (MTD Capital’s full-year FY03/10 accounts were recently qualified by auditors
due to same issue). It is hoping that the matter will be resolved by February 2011, when it reports its full-year
FY12/10 accounts.

♦ Forecasts. Maintained.

♦ 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) Better-than-expected construction margins.

♦ 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. WCT, via WCT –
Synohydro JV, has been pre-qualified to bid as main contractor and segmental box girder sub-contractor for the
Ampang and Kelana Jaya LRT line extension project. However, upside in WCT’s share price is capped by rich
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.

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 23 August 2010

Table 2: Outstanding Construction Orderbook

Project Outstanding Value
(RMm)
Overseas
New Doha International Airport, Qatar 173
Hotel fit-out works at Bahrain City Centre 238
Others 23
434

Local
The Paradigm and other internal jobs 668
Infrastructure works at Iskandar Malaysia 481
Various building jobs in Putrajaya 252
New permanent LCCT at KLIA, Earthwork Package 1 203
Bakun dam access roads 80
Kota Kinabalu International Airport 36
Universiti Teknologi Mara Campus in Kuala Selangor 36
AEON mall in Melaka 28
Others 89
1,857
Total 2,307
Source: Company, RHBRI

Table 3: Earnings Forecasts Table 4: 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

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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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