14 May 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
14 May 2010
MARKET DATELINE

WCT Share Price

Fair Value
:
:
RM2.76
RM2.10
Potential Share Of Additional Bakun Cost Overrun Recom : Underperform
(Maintained)
Amounting To RM97m

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 14.7 - - 10.0 1.7 11.5 0.2 3.6
2010f 2,436.2 140.6 18.2 (3.0) 15.2 17.5 20.0 21.7 1.5 10.2 0.5 2.2
2011f 2,020.9 130.7 16.9 (7.0) 16.3 16.4 22.0 24.7 1.4 8.8 0.5 2.2
2012f 1,747.5 134.2 17.4 2.6 15.9 16.8 22.0 24.2 1.3 8.5 0.4 2.2
Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC #Excluding EI * Consensus Based On IBES

♦ More cost overrun from Bakun. WCT that owns an effective 7.7% stake Issued Capital (m shares) 781.7
in Malaysia-China Hydro Joint Venture, the consortium that was awarded Market Cap(RMm) 2,157.4
the RM1.8bn CW2 Package of the Bakun Hydroelectric Project (Bakun) in Daily Trading Vol (m shs) 2.5
2002, may have to recognise more losses from the contract. Sime Darby, 52wk Price Range (RM) 1.79-3.06
the lead member of the consortium with an effective stake of 35.7%, said Major Shareholders: (%)
yesterday that “there could be a potential additional cost attributable to the EPF 21.9
Taing KH & Wong SW 21.0
group (Sime Darby) of RM450m”. This means there may be an additional
KWAP 7.2
RM1.26bn cost overrun incurred at the consortium level and WCT’s share
will be RM97m, translating to 12.4sen/share. FYE Dec FY10 FY11 FY12

♦ First provided losses in 2004. Recall, apart from Sime Darby and WCT,
Var to Cons (%)
EPS Revision (%) -
-9
-
-23
-
-21
the consortium consists of China National Water Resources and Hydropower
Engineering Corporation (30%), MTD Capital (7.7%), Ahmad Zaki PE Band Chart
Resources (7.7%), Syarikat Ismail Ibrahim Sdn Bhd (7.7%) and Edward &
Sons Sdn Bhd (3.5%). In 2004, Sime Darby and WCT first provided PER = 19x
PER = 15x
RM132m and RM25m “foreseeable contract losses” respectively from the PER = 11x
project. PER = 7x

♦ Could severely hit FY12/10 earnings. The potential share of additional

Bakun cost overrun of RM97m or 12.4sen/share could erode our FY12/10
EPS forecast for WCT of 18.2sen by a whopping 68%.
♦ Forecasts. Maintained pending clarification from the company. Relative Performance To FBM KLCI

♦ 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)
WCT
Better-than-expected construction margins.
♦ Risk appetite for construction stocks to improve. We are now more
upbeat on the construction sector, prompted largely by investors’ improving FBM KLCI
risk appetite for construction stocks following: (1) The massive
underperformance of the sector vis-à-vis the market in 4Q2009 and
1Q2010; and (2) A better sector news flow and new expectations leading up
to the announcement of the 10th Malaysia Plan (10MP) in June 2010.
♦ Maintain Underperform. However, upside in WCT’s share price is capped Joshua CY Ng
(603) 92802151
by rich valuations. Indicative fair value is RM2.10 based on 12x fully-
joshuang@rhb.com.my
diluted FY12/10 EPS of 17.5sen, in line with our benchmark 1-year forward
target 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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