WCT: Profit Halves Amid Construction Margin Squeeze, Property Segment Outperforms
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The company reported a significant decline in its second-quarter net profit for the financial year 2025 (2QFY25), falling 51.0% year-on-year (YoY) to RM15.3 million. This brings the cumulative net profit for the first six months of FY25 to RM27.3 million. While the results were below the investment bank’s estimates, they were within broader market expectations, representing 29.4% and 44.7% of respective full-year forecasts.
Performance Review
Despite the substantial drop in net profit, 2QFY25 revenue saw a robust increase of 46.9% YoY to RM552.8 million. This growth was primarily fueled by the strong performance of its Property Development (PD) division, which nearly doubled its revenue YoY to RM241.4 million. The PD segment also saw its operating profit almost triple to RM46.4 million, driven by higher sales and land transactions.
Conversely, the Engineering and Construction (E&C) division, while reporting a 32.8% YoY revenue growth to RM247.7 million due to increased activity, was the primary drag on profitability. The net profit decline was attributed to lower contributions from this division, as several higher-margin projects neared completion, leading to reduced recognized margins. The Property Investment & Management (PIM) division’s revenue remained flat at RM63.7 million, with operating profit decreasing 36.3% YoY due to increased operating costs.
Future Outlook and Recommendation
Looking ahead, the group’s outstanding construction order book remains healthy, estimated at RM2.6 billion. In the property segment, the group has achieved year-to-date sales of RM362.0 million, putting it on track to meet its internal property sales target of RM1.1 billion for FY25.
The investment bank has revised its FY25F-27F earnings forecast downwards by an average of 46% to account for the lower-than-expected margins in the E&C division. Despite the earnings revision, the bank maintains its “Outperform” rating on the stock, albeit with a reduced target price of RM0.94, down from RM1.08 previously. The new target price, which suggests an upward potential for the stock, is pegged at 0.4x price-to-book value (+2SD).
Future earnings growth will largely hinge on effective project execution, successful cost recovery from completed projects, and the group’s ability to replenish its construction order book.
