10 March 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

New s Upda te
10 March 2010
MARKET DATELINE

WCT Share Price

Fair Value
:
:
RM2.72
RM2.10
Served A Request For Arbitration Amounting To Recom : Underperform
(Maintained)
RM49.5m

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 14.1 - - 9.6 1.6 11.5 0.2 3.8
2010f 2,436.2 140.6 18.2 (3.0) 14.6 17.5 21.0 20.9 1.5 10.2 0.5 2.3
2011f 2,020.9 130.7 16.9 (7.0) 15.7 16.4 22.0 23.7 1.4 8.8 0.5 2.3
2012f 1,747.5 134.2 17.4 2.6 15.3 16.8 - 23.2 1.3 8.5 0.4 2.3
Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC #Excluding EI * Consensus Based On IBES

♦ Served a request for arbitration by sub-contractor. Bahrain Asphalt Issued Capital (m shares) 778.3
Establishment (BAE), a sub-contractor to the 51:49 JV between Gamuda Market Cap(RMm) 2,117.0
and WCT for the Dukhan Highway project in Qatar, has served the Gamuda- Daily Trading Vol (m shs) 3.3
WCT JV a request for arbitration, claiming a total sum of QAR109.3m 52wk Price Range (RM) 0.985-2.84
(RM101.1m), comprising costs arising from the delay in the completion of Major Shareholders: (%)
the sub-contract (i.e. granular sub-base and flexible pavement works), and EPF 24.2
Taing KH & Wong SW 21.1
certain overcharging and wrongful deductions, coupled with unquantified
KWAP 6.0
sums for legal, arbitration and interest costs. WCT is of the opinion that the
request for arbitration is pre-mature as the preconditions stipulated in the FYE Dec FY10 FY11 FY12
arbitration clause have not been met, and it has a good defence against the EPS Revision (%) - - -
claims. Var to Cons (%) -9 -23 -17

♦ Potentially 35% dent on FY12/10 EPS. Based on WCT’s 49% share of PE Band Chart
the total sum claimed (before legal, arbitration and interest costs) of
RM49.5m, the potential loss to WCT is 6.4sen/share that will put a 35% PER = 19x
PER = 15x
dent to our projected FY12/10 EPS of 18.2sen for WCT. PER = 11x
PER = 7x
♦ Forecasts. Maintained pending the outcome of the arbitration.
♦ Risks to our view. The risks include: (1) New contracts secured in
FY12/10-11 coming in above our target of RM1.5bn per annum; and (2)
Better-than-expected construction margins.
♦ Sector’s best case priced in. On the big picture, while a rosy picture for Relative Performance To FBM KLCI

the construction sector has been priced in based on construction stocks’

current rich valuations, it is still far from being a reality, especially so after
WCT
a slew of negative developments including reduced gross development
expenditure in 2010, Dong’s devaluation, the Dubai credit crisis and the
seemingly declining dominance of the big boys in large-scale projects. We
believe the market has under-appreciated two other key risks as well,
FBM KLCI
namely: (1) Possible delays in project implementation; and (2) Sub-par
margins due to stiff competition.
♦ Maintain Underperform. We believe the share price has priced in the
earnings buffer from WCT’s RM3.2bn outstanding construction orderbook Joshua CY Ng
(see Table 2). Indicative fair value is RM2.10 based on 12x fully-diluted (603) 92802151
FY12/10 EPS of 17.5sen, in line with our benchmark 1-year forward target joshuang@rhb.com.my
PER of 10-14x for the construction sector.

Please read important disclosures at the end of this report.

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Table 2: Outstanding Construction Orderbook

Project Outstanding Value
(RMm)
Overseas
New Doha International Airport, Qatar 371
Hotel fit-out works at Bahrain City Centre 352
Marina landside facilities, Yas Island, Abu Dhabi 42
Others 31
796

Local
Infrastructure works at Iskandar Malaysia 732
The Paradigm and other internal jobs 717
New permanent LCCT at KLIA, Earthwork Package 1 363
Various building jobs in Putrajaya 326
Bakun dam 92
Kota Kinabalu International Airport 48
Universiti Teknologi Mara Campus in Kuala Selangor 36
AEON mall in Melaka 28
Others 73
2,415
Total 3,211
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

IMPORTANT DISCLOSURES

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

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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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