2QFY26 Credit Update: WCT — Strong Order Book Supports Outlook Amid Higher Leverage

Key Highlight

• Construction Order Book Strengthens Revenue Visibility: WCT’s outstanding construction order book reached approximately RM4.0 billion following a RM600.9 million TRX office building contract secured in August 2026, providing coverage of around 4.0 times FY25 engineering and construction revenue.
• Weaker 1HFY26 Financial Performance: Revenue declined 20% YoY to RM815.6 million, while core operating profit fell 62% to RM53.5 million, reflecting lower contributions across all three business segments.
• Higher Debt but Slightly Improved Net Gearing: Total debt increased 13% to RM3.35 billion following a RM655 million Sukuk Wakalah issuance. However, net gearing improved from 72% to 70%, supported by a 10% increase in cash and bank balances to RM644.2 million.
• Weaker Credit Metrics Compared with Peers: WCT’s net gearing of 70% and interest coverage of 1.4 times indicate higher leverage and weaker debt-servicing capacity than its peers, Sunway and IJM.
• Slightly Positive Outlook with Preference for Shorter-Duration Bonds: The sizeable construction order book and established business presence support a slightly positive outlook. However, weaker earnings, elevated leverage and low interest coverage warrant continued monitoring.

Following our previous 1Q26 Credit Update, WCT Holdings Berhad (WCT) has released its 2Q26 results, providing further insights into its financial and credit performance. This update reviews the key developments since our previous assessment.

Previous Article Update: WCT’s New Sukuk Issuance: 4-Year MYR Bonds with IPG of 5.4% | Bondsupermart

Strong Construction Order Book Supports Near-Term Revenue Visibility

WCT’s outstanding construction order book stood at RM3.7 billion as at 30 June 2026 (2QFY26), up from RM2.6 billion a year earlier, supported by new contract wins during the period, most notably the Yas Living and Yas Riva Residence projects, valued at RM1.7 billion on a 50:50 joint venture basis.

Subsequently, on 28 August 2026, WCT secured a RM600.9 million contract from TRX City Sdn Bhd to construct a 41-storey office building at Tun Razak Exchange (TRX), bringing its estimated outstanding order book to approximately RM4.0 billion. This represents around 4.0 times FY25 engineering and construction revenue, supporting revenue visibility over the near to medium term.

Historically, the engineering and construction segment has contributed approximately 50%–60% of WCT’s total group revenue, making it a core earnings driver. Although its relative contribution to operating profit has declined amid increasing contributions from property development, the segment remains a key pillar of WCT’s business profile.

Lower Earnings Amid Construction Cyclicality and REIT Injection

As shown in Table 1, WCT’s 1HFY26 revenue declined 20% YoY to RM815.6 million, mainly due to lower contributions across all three segments. Engineering and Construction revenue fell 7% to RM438.6 million, with the segment recording an operating loss of RM10.7 million compared with a profit of RM9.2 million in 1HFY25, partly reflecting the completion of previous projects and the cyclical nature of construction activity. Property Development revenue and operating profit declined 33% and 40% to RM280.1 million and RM45.6 million, respectively, due to lower property sales and the absence of land sales recognised in the previous year.

Meanwhile, Property Investment and Management revenue decreased 29% to RM97.0 million, while operating profit fell 68% to RM18.6 million. The decline partly reflects the injection of Paradigm Mall Johor Bahru and Bukit Tinggi Shopping Centre into Paradigm REIT in June 2025, which reduced WCT’s retained contribution from these assets. Consequently, total core operating profit fell 62% YoY to RM53.5 million, while the core operating profit margin narrowed to 6.6% from 13.9%. Although project timing and portfolio restructuring contributed to the decline, the operating loss in Engineering and Construction and weaker contributions from the other segments highlight near-term earnings pressure.

Table 1: WCT’s Financial Highlight

Improving Credit Metrics, but Remain Lacklustre Compared to Peers 

WCT’s total debt increased to RM3.35 billion, mainly following the issuance of RM655 million in Sukuk Wakalah, which is expected to fund its ongoing construction projects and support the execution of its outstanding order book. Cash and bank balances also increased 10% to RM644.2 million, helping net gearing improve marginally from 72% to 70%. Nevertheless, total debt-to-total assets increased from 38% in FY25 to 41% in 1HFY26, indicating that debt has grown slightly faster than its asset base. Meanwhile, the increase in cash balances has not translated into stronger debt-servicing capacity, as interest coverage declined from 1.6 times in FY25 to 1.4 times in 1HFY26, reflecting weaker operating earnings (Table 2).

Nevertheless, WCT’s short-term liquidity remains relatively tight, with a cash-to-short-term debt ratio of only 0.43 times, indicating potential refinancing requirements in the near term, particularly given approximately RM540 million in Sukuk maturities. However, its RM4.0 billion outstanding order book provides revenue visibility and should support ongoing cash flow generation, helping to maintain its refinancing capacity.

As shown in Table 3, despite differences in market capitalisation, WCT exhibits a relatively weaker credit profile compared with Sunway and IJM. WCT has the highest net gearing ratio at 70%, compared with 56% for IJM and 29% for Sunway, indicating a higher reliance on debt financing. In addition, WCT’s interest coverage ratio of 1.4 times is lower than IJM’s 2.3 times and Sunway’s 5.8 times, suggesting a more limited capacity to service interest expenses from operating earnings.

While the stronger construction order book provides some revenue visibility, sustained improvement in profitability and cash flow generation will be important for WCT to strengthen its credit profile and manage its debt obligations.

Table 2: WCT’s Credit Highlight

Table 3: Peer Comparison

Further Asset Monetisation Potential to Support Deleveraging

WCT retains further asset monetisation potential through the proposed injection of its hotel and Mall assets into Paradigm REIT. As at 30 June 2026, Paradigm REIT reported borrowings of RM845 million and gearing of 32.93%, providing estimated additional debt headroom of approximately RM435 million before reaching the regulatory gearing ceiling of 50%. This provides some financial flexibility and could unlock additional liquidity for WCT to pare down its borrowings and strengthen its balance sheet, while allowing the group to retain exposure to recurring income through its REIT ownership.

Recommendation

Overall, we remain slightly positive on WCT, supported by its sizeable construction order book of approximately RM4.0 billion, which provides revenue visibility over the near to medium term, and its established presence across construction, property development and investment.

Nevertheless, the 62% decline in 1HFY26 core operating profit, the operating loss in Engineering and Construction, and relatively low interest coverage of 1.4 times highlight ongoing pressure on WCT’s earnings and debt-servicing capacity. Elevated leverage further limits its financial flexibility should project execution weaken.

Given these risks, we prefer WCT bonds with shorter remaining maturities to limit exposure to longer-term refinancing. Investors may consider holding the bonds listed in Table 4, while monitoring earnings recovery, operating cash flow generation and changes in leverage.

Table 4: WCT Existing Bond Under Coverage