WCT: Earnings Outperform on Property Segment Strength, Outlook Cautious

A recent investment bank research report indicates a significant turnaround in core net profit for the third quarter of fiscal year 2025 (3QFY25), reaching RM10.6 million compared to a core net loss of RM5.5 million in the same period last year. The group’s nine-month (9M) FY25 earnings were in line with the bank’s expectations and notably surpassed consensus estimates, representing 78% and 86% of respective full-year forecasts.

Performance Review

Revenue for 3QFY25 saw a healthy 10.3% year-on-year increase to RM482.6 million. This growth was primarily fueled by a robust performance in the property development (PD) segment, which recorded a 28.9% year-on-year revenue surge to RM180.3 million. The segment benefited from higher sales, increased billings, and land sales, coupled with improved operating margins of 13.7%, an increase of 4.5 percentage points year-on-year.

The engineering and construction (E&C) segment also contributed positively to revenue, with a 16.6% year-on-year increase to RM264.1 million, driven by more construction activities. However, operating margins within this segment remained disappointing, registering below 1%. Conversely, the property investment and management (PIM) division experienced a 46.3% year-on-year revenue decline to RM38.2 million, largely due to reduced ownership of retail malls following the listing of its Paradigm REIT. The PIM division’s operating profit subsequently plunged 96.6% year-on-year, primarily due to a high comparative base in 3QFY24, which included a one-off net gain.

Outlook and Challenges

Looking ahead, the group maintains a healthy outstanding construction order book estimated at RM2.3 billion. However, concerns persist regarding the property segment’s sales performance, which has underperformed year-to-date. With RM502 million in sales, the group has only achieved 46% of its full-year sales target of RM1.1 billion. Additionally, take-up rates for recent property launches remain subdued at 56%.

Future earnings are highly dependent on improved project execution, especially considering that the group’s current margins are significantly below the industry average. Furthermore, the housing market faces considerable headwinds, including affordability issues, a supply-demand mismatch, and broader economic challenges that are likely to dampen consumer confidence and spending power.

In light of these factors, PublicInvest Research has revised its stance, downgrading the stock from Outperform to Neutral, with a revised lower target price of RM0.59.