WCT: Mixed Q2 Performance: Earnings Fall Short, Property Segment Provides Support

A recent investment bank research report indicates that WCT Holdings Bhd delivered a second-quarter financial performance for FY25 that fell short of both internal and consensus expectations. While the company achieved a significant year-on-year increase in revenue, its core net profit experienced a substantial decline, primarily due to softer construction activities and elevated expenses. The research firm has maintained a BUY recommendation, although it has revised the target price to RM0.93 from RM0.95.

Performance Review

For the second quarter of FY25 (2QFY25), WCT Holdings Bhd recorded a 46.9% year-on-year surge in revenue, reaching RM552.8 million. However, core net profit plunged by 48.2% year-on-year to RM16.1 million. This resulted in a cumulative 1HFY25 core net profit of RM28.3 million, marking a 40.1% year-on-year decrease and falling below 36.9% and 40.5% of full-year estimates by the research firm and consensus, respectively.

The decline in the bottom line was largely attributed to higher administrative and interest expenses, coupled with lower associate profits. The engineering and construction segment, despite a 32.8% rise in revenue to RM247.7 million, saw its operating profit decline by approximately 5.3 times year-on-year to RM2.10 million. This was primarily a consequence of a slower construction pace and the recognition of lower margins as higher-margin projects neared completion, with margins dropping sharply from 6.0% in 2QFY24 to 0.85% in 2QFY25.

In contrast, the property development segment emerged as a significant driver for profitability, achieving a quarterly operating profit of RM46.4 million (over 100% year-on-year growth) on the back of a 90.5% increase in revenue to RM241.4 million. This strong performance was fueled by higher sales and billings, including RM156.0 million from property and land sales. The group also actively reduced unsold inventories, which saw a 5.56% quarter-on-quarter reduction.

The property investment and management segment reported a 36.3% year-on-year decline in operating profit to RM20.5 million, despite a marginal revenue increase. This segment was impacted by a RM13.4 million expense related to the Paradigm REIT listing and a decline in operating profit margins from 51.0% to 32.2%.

Future Outlook and Recommendation

WCT Holdings maintains a robust outstanding order book of RM2.60 billion as of June 2025, providing strong earnings visibility through FY27. Key projects like the North-South Expressway additional lane contract and phases 1 and 2 of the Pavilion Damansara Heights development are expected to drive earnings momentum in coming quarters. Management targets RM1.09 billion in property sales for FY25, supported by RM1.04 billion in total unbilled sales as of June 2025.

The group’s recent Paradigm REIT listing has successfully unlocked asset value and improved financial flexibility, significantly reducing high borrowings from RM3.01 billion (Dec-24) to RM1.78 billion (Jun-25). Consequently, the net gearing ratio improved markedly from 0.80x to 0.47x.

Despite the recent earnings miss, the research firm highlights a strong need for WCT to secure new jobs, noting a tender book exceeding RM11.0 billion. Expectations are for a stronger pipeline of civil projects in 2HCY25, particularly from airport, data centre, and road infrastructure developments under the 13th Malaysia Plan.

The research firm has reaffirmed its “BUY” call, adjusting the target price to RM0.93 (previously RM0.95), based on a lower FY26F EPS of 4.67 sen and a PER of 20x. The last traded price as of August 26, 2025, was RM0.82.