In this article, we will be deep diving into WCT's latest Q2 2021 quarterly results to determine the key metrics that measure the company's profitability, cashflow, liquidity and capital structure.
Profitability: Weakened due to pandemic but better performance expected going forward
Table 1: WCT’s Group Performance (2020 - Q2 2021)
| RM million | 2018 | 2019 | 2020 | Q1 2021 | Q2 2021 |
| Construction Revenue | 1845.6 | 1,285.60 | 1,252.90 | 230.89 | 339.22 |
| Property Development Revenue | 254.9 | 346.5 | 278.9 | 176.65 | 56.05 |
| Property Investment Revenue | 196.2 | 203.5 | 172.7 | 36.74 | 40.35 |
| Total Revenue | 2,296.70 | 1,835.60 | 1,704.50 | 444.28 | 435.62 |
| Operating Profit | 320.6 | 193.5 | 87.6 | 152.22 | 59.17 |
| Operating Profit Margin (%) | 13.96% | 10.54% | 5.14% | 34.26% | 13.58% |
| Net Profit | 46.21 | -34.24 | -179.63 | 87.69 | 14.92 |
| Net Profit (%) | 2.01% | -1.87% | -10.54% | 19.74% | 3.43% |
| Sources: WCT, iFAST compilations, Data as of 09 Sep 2021 | |||||
The group recorded a lower revenue and profitability year over year from 2018 to 2020, see Table 1. Notably, WCT registered its first losses in 2019 ever since its listing on Bursa Malaysia.
Moreover, the group’s losses extended further in 2020 due to the disruption precipitated by the imposition of the movement control order in tandem with an additional loss recorded in its joint venture business.
After the pandemic-stricken 2020, WCT has shown good recovery in Q1 and Q2 2021 so far. However, its recovery could be dented by the latest lockdown in Q3 2021. That being said, we believe the group would recover beyond Q3 2021 on the back of the following reasons:
1. RM 5.34 billion order book from Engineering and Construction provides earning visibility through 2023 at least.
Engineering and Construction, the largest contributor to the group’s revenue, has an outstanding RM 5.34 billion order book spread over the next four years, which could sustain the group’s revenue stream to 2024, see Table 2.
Table 2: Substantial order book spread over next four years (RM million)
| 2021 | 2022 | 2023 | 2024 | 2025 | |||||
| TRX, KL | 85 | Pan Borneo Highway | 608 | LRT 3 G503 | 442 | Pavilion Damansara Heights - Phase 2 | 1,165 | Expansion of Sapangar Bay Container Port | 540 |
| MRT2 V204 & 5204 | 53 | West Coast Expressway | 88 | Pavilion Damansara Heights -Phase 1 | 1,175 | Kota Bharu Airport, Kelantan | 440 | ||
| Others | 5 | Elevated Highway | 120 | Hotel & Office, TRX | 135 | ||||
| Jetty Extension | 78 | ||||||||
| Retail Mall, TRX - TP02 | 205 | ||||||||
| Retail Mall, PNB 118 (51%) | 227 | ||||||||
| 143 | 1,326 | 1,752 | 1,605 | 540 | |||||
| Sources: WCT, iFAST compilations, Data as of 09 Sep 2021 | |||||||||
2. Gross Development Value (GDV) of RM 3.5 billion for future launches in 2022 & 2023 to support the performance of the property development arm.
Property investment, the second-largest contributor to the group’s revenue, has an outstanding unbilled sales amount of Rm 147 million. Further to that, WCT has an unsold inventory that stood at RM 513 million on the books, coupled with RM3.5 billion GDV for future launches in 2022 & 2023.
Housing activities appear to revitalise amid the low interest rate environment and a myriad of the housing initiatives in-placed. In line with the in-house promoting activities, in a short to medium-term view, we expect to see an improved take-up rate across its unsold inventories and new launches, then replenishing the group’s unbilled sales and thus shoring up the profitability of the property investment arm.
3. Retails Mall occupancy rates should recover when the pandemic situation improves
Table 3: Occupancy rate of the retail malls under management
| Retail Mall | Group's Ownership | Occupancy Rate | ||
| Jun-21 | Mar-20 | Jun-19 | ||
| Aeon Bukit Tinggi | 100% | 100% | 100% | 100% |
| Paradigm Mall, Petaling Jaya | 70% | 97% | 97% | 95% |
| Paradigm Mall, Johor Bahru | 100% | 100% | 96% | 93% |
| Gateway KLIA2 Sepang | 81% | 70% | 90% | 92% |
| Subang Skypark | 84% | 60% | 86% | 86% |
| Sources: WCT, iFAST compilations, Data as of 09 Sep 2021 | ||||
Airport-related malls - Gateway KLIA2 Sepang and Subang Skypark saw huge drops in occupancy rates as tenants refrained from renewing leases amid border closures which led to lack of air and foot traffic. Nevertheless, some of the key malls still managed to hold up decently due to their strategic positions at matured townships.
On the positive side, the ramped-up vaccination rollout across the nation has led to the government gradually easing lockdowns and reopening the economy. Needless to say, the relaxation of the movement restriction is a key catalyst for the revival of the retail malls business. Hence, we should see improvements in the property investment & management arm in the coming quarters.
Liquidity: Group’s liquidity slipped yet remains solid owing to ample financial flexibility
Table 4: WCT Group’s Liquidity (2016- Q1 2021)
| FYE December 31 | 2017 | 2018 | 2019 | 2020 | Q1 2021 | Q2 2021 |
| Cash and bank balance (RM Mil) | 527.2 | 400.9 | 646.4 | 526.5 | 466.22 | 277.7 |
| Cash Ratio (x) | 0.18 | 0.2 | 0.26 | 0.22 | 0.19 | 0.1 |
| Current Ratio (x) | 1.43 | 1.5 | 1.33 | 1.29 | 1.36 | 1.24 |
Despite the group’s liquidity ratios amid the pandemic days were less impressive than its previous days as the cash has depleted quickly, its robust financial flexibility reaffirms the group’s strong liquidity position.
On top of the RM 233 million cash and cash equivalent, the group has unutilised borrowings of RM 1.6 billion to use for immediate liquidity needs. Furthermore, a litigation claim of RM 828 million against Meydan was judged in favour of WCT, and the first payment of up to RM 318 million was paid in July 2021. In addition to the disposal of lands worth RM 214 million, the group would be able to take great strides toward creating a rock-solid liquidity profile
Cash Flow Coverage: Underwhelming track-record but recovery seems possible in near future
Table 5: WCT Group’s Cash Flow (2016- Q1 2021)
| FYE December 31 | 2017 | 2018 | 2019 | 2020 | Q1 2021 | Q2 2021 |
| CFO (RM million) | -15.1 | -83.4 | 330.2 | 17.98 | 23.41 | -185.11 |
| CFO Interest Coverage (x) | -0.1 | -0.45 | 1.87 | 0.125 | 0.94 | n.m. |
| CFO Debt Coverage (x) | n.m. | n.m. | 0.05 | 0.006 | 0.008 | n.m. |
| CFO Short-Term Debt Coverage | n.m. | n.m. | 0.27 | 0.01 | 0.02 | n.m. |
| CFO Net Debt Coverage | n.m. | n.m. | 0.12 | 0.0074 | 0.0095 | n.m. |
| FCF (RM million) | n.m. | n.m. | 299.44 | 32.37 | n.m. | n.m. |
| Free Cash Flow to Total Debt | n.m. | n.m. | 0.08 | 0.01 | n.m. | n.m. |
WCT found it difficult to generate cash inflows over the past years and recorded low or negative cash flow from operation except for 2019, a year with glaring cash from operation stood at RM 330 million. It did manage to produce positive cash flow during the pandemic in FY2020 and Q1 2021.
However, the economic recovery is on its way, which shows that it surely plays as a catalyst to re-energise the group’s business segments and thereby benefiting WCT to capture more sales and further replenish its cash flow reserve. As mentioned previously, RM 5.63 billion of order books recorded in its engineering and construction, coupled with property development’s RM3.6 billion worth of new launches, would potentially contribute to the group’s recovery.
Capital Structure: WCT deleverages to alleviate its gearing, but more efforts are needed to keep abreast with peers.
Table 6: WCT’s gearing ratios as a glance
| FYE December 31 | 2017 | 2018 | 2019 | 2020 | Q1 2021 | Q2 2021 |
| Capital Structure | ||||||
| Debt to Equity | 1.04 | 1.15 | 1.01 | 1.03 | 1.00 | 1.01 |
| Net Debt to Equity | 0.84 | 0.89 | 0.81 | 0.87 | 0.86 | 0.93 |
| Debt to Total Capitalization | 0.51 | 0.54 | 0.50 | 0.51 | 0.50 | 0.50 |
| Long-term Debt to Equity | 0.71 | 0.87 | 0.65 | 0.66 | 0.51 | 0.45 |
| Short-term Debt to Equity | 0.33 | 0.29 | 0.35 | 0.37 | 0.37 | 0.44 |
| Total Liabilities to Total Asset | 0.61 | 0.63 | 0.61 | 0.62 | 0.61 | 0.61 |
| Sources: WCT’s Annual Report, MARC, iFAST compilations, Data as of 09 Sep 2021 | ||||||
Based on Table 6, we can see the WCT’s capital structure has been improving in the past few financial years. The debt to equity ratio of WCT, a measure to gauge the fraction of debt and equity a company use to fund its assets, dipped into a relatively lower level of 1.01 in Q2 2021 from 1.15 recorded in 2018. An improved gearing ratio evidenced the great amount of management’s effort to bring down the group’s gearing ratio and spur up the group’s debt capacity with a lower debt commitment.
We could expect to see a more improved group’s gearing ratio in the upcoming days as WCT has disposed of some lands at a price tag of RM 214.30 million located in Sungai Buaya, Selangor, to shore up the liquidity. Further to that, litigation claims of RM 828 million were awarded against Meydan, where the first payment of up to RM 318 million was paid on July 2021. Hence, significant additional cash received could help WCT spare more debt capacity by repaying debts.
Table 7: Adjust Debt to Equity (WCT vs Top 10 Constituents of Bursa Construction Index)
| Adjusted Debt to Equity (Latest Quarter) | |
| Gamuda | 0.60 |
| IJM Corp | 0.32 |
| Sunway Construction | 0.32 |
| Kerjaya Prospek | 0.07 |
| Ekovest | 0.33 |
| AME Elite Consortium Bhd | 0.33 |
| Jaks Resources | 0.31 |
| WCE Holdings | 3.37 |
| WCT | 1.01 |
| Econpile | 0.17 |
| Sources: WCT’s Annual Report, MARC, iFAST compilations, Data as of 09 Sep 2021 | |
That being said, WCT has more work to do to get abreast of its industry peers in the sense of having a healthy capital structure. For example, see table 5, WCT recently recorded a debt to equity ratio of 1.01, which is higher than most of its industry peers and it is only lower than WCE holdings that has an unusually high D/E ratio of 3.37.
Our thoughts
The destructive COVID-19 outbreak brought the group into a hard time but the broader sector has underperformed altogether. Nevertheless, we are optimistic that the company’s performance could be uplifted in a foreseeable time on the back of the resumption of the construction and housing activities, as well as the relaxation of the COVID-19 movement restriction measures enabling retail malls back into operation.
Further to that, though some group’s credit metrics have deteriorated, the group desperately slashes its debts committed to moving the company into a less geared territory.
Therefore, we remain upbeat about the company and that it would be able to live through the recent underperformance and in the medium term on account of the following reasons:
1. RM 5.63 billion order books help sustain the group’s earnings for the next few years at least
A substantial amount of order books from the engineering and construction (E&C) arm secured the group’s earnings through 2024, and RM 143 million unbilled sales the property development division marked could further expedite the company’s revenue.
On top of that, we expect the company’s earnings to be powered up via new revenues generated from RM 3.6 billion gross development value of new property launches, and the reopening of the retails malls.
2. Debt Maturity Profile well spread out over the next 5 years
| RM million | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | Total |
| Term Loans | 141 | 373 | 50 | 50 | 50 | 13 | 678 |
| Sukuk Murabahah | 200 | 400 | 300 | - | 200 | 310 | 1,410 |
| Banker Acceptance | 23 | - | - | - | - | - | - |
| Hire Purchase | 17 | 9 | 1 | 1 | 1 | - | 30 |
| Total | 380 | 782 | 352 | 52 | 252 | 323 | 2,141 |
| Sources: WCT’s Annual Report, MARC, iFAST compilations, Data as of 09 Sep 2021 | |||||||
The group’s outstanding debt of RM 2.98 billion appears to be quite manageable. In 2021, the group has a term loan of RM 141 million in tandem with RM 22 million worth of banker acceptance to pay off within a year where the group’s unencumbered cash at the end-June 2021 stood RM 150 million. Further to that, RM1.6 billion of unutilised borrowing plus the initial payment of RM 318 million out of RM 828 million litigation claims would ensure the company makes timely repayment in the short term.
3. Group’s robust financial flexibility
As mentioned previously, WCT has an unutilized borrowing of RM1.6 billion and the group’s completed the disposal of the land worth RM 214 million, as well as the litigation claim of RM 828 million awarded whereby the company is said to have strong financial flexibility. To extend the litigation claims in a greater detail, the group has received the initial payment of RM 318 million, and the remaining payment would be made in 12 equal quarterly instalments, or WCT to receive RM 42 million for each quarter in the upcoming 3 years.
| RM million | 2021 | 2022 | 2023 | 2024 | Total |
| Litigation Claims | 318 | 170 | 170 | 170 | 828 |
| Sources: WCT's Analyst Meeting and Company General Announcement | |||||
Declaration:
For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in WCTHG 5.550% 03Jan2025 Corp (MYR). The analyst who produced this report holds NIL position in the abovementioned securities.
