View Credit Analysis Report (605234)

Date Article2020-08-19 00:00:00
MARC has affirmed its ratings on WCT Holdings Berhad’s RM1.0 billion Medium-Term Notes (MTN) Programme at AA- and its RM1.5 billion Sukuk Murabahah (Sukuk) Programme at AA-IS. The rating agency has also affirmed its rating on the RM1.0 billion Perpetual Sukuk Musharakah Programme at AIS. The outlook for all ratings is stable.

The affirmed MTN and Sukuk programme ratings consider WCT Holdings’ strong and fairly diversified construction order book that provides earnings visibility and the group’s healthy liquidity position relative to its near-term debt obligations. The rating action also factored in the group’s sizeable undeveloped landbank that provides a strong source of liquidity. Notwithstanding these strengths, the weak performance of its property development and investment segments remains a key rating concern. Should this lead to a subsequent build-up in property inventory that may impact its overall liquidity position and further weaken its cash flow metrics, the outlook and/or ratings could be revised downwards. We also expect the group to maintain a net gearing of about 0.7x but with gross gearing of below 1.0x, and an operating profit margin of higher than 10%.

As at end-March 2020, the group’s outstanding construction order book stood at RM6.0 billion which includes the newly awarded RM1.2 billion Pavilion Damansara Heights construction contract (in addition to an existing RM1.8 billion contract under the same project). Other sizeable contracts include two packages under the Klang Valley Mass Rapid Transit Line 2 (KVMRT2) and Light Rail Transit Line 3 (LRT3) projects which have a combined outstanding amount of RM1.2 billion. The order book will provide earnings visibility through 2023. The group’s property development activities, however, remain challenging given a moderate take-up rate for ongoing projects and high inventory levels valued at RM871.0 million as at end-May 2020. This concern is partly mitigated by the group’s property sales of RM183.0 million in addition to unbilled sales of RM182.0 million as at date.

The performance of the group’s malls and hotel segments has been significantly affected since the onset of the COVID-19 pandemic. The rating agency has observed some recovery with the easing of restrictions imposed under the movement control order; nonetheless, the impact has been substantial with mall rental income being halved between March and September 2020. Car park revenue from its gateway@klia2 mall is expected to decline by up to 60% over the same period.

For 1Q2020, the group registered a 29.4% lower y-o-y revenue of RM363.1 million mainly due to slower progress in local construction projects. The group’s borrowings stood at RM3.5 billion while gross debt-to-equity (DE) and net DE stood at 0.99x and 0.76x at end-March 2020; any prospects of a substantial reduction in borrowings in the near term could be challenging given the working capital requirement and weak outlook for the property sector. With cash balance of RM820.0 million, the group has liquidity to meet its near-term financing obligations. Cash flow generation is expected to be supported by progress billings from ongoing construction projects and to a lesser extent, from potential land parcel sales. 

Major Rating Factors

Established track record in the construction industry;
Strong construction order book; and
Sizeable undeveloped landbank.


Property inventory build-up;
Increased challenges to further reduce leverage position; and
Weakened prospects for hotel and mall business segments.
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