Thursday, Sep 06, 2001
The affirmation of WCT Engineering Bhd’s (WCT) corporate debt rating of A– (s) reflects the group’s competitive position in the civil engineering and building segment of the construction industry; good track record; improving financial profile; conservative financial management and an experienced management team. The bonds issue is supported by an irrevocable banking facility of RM15 million that serves to cover any liquidity shortfall towards meeting the annual sinking fund obligation. The irrevocable banking facility has to be in place six months prior to the first scheduled payment into the sinking fund. The rating is, however, moderated by the overhang of excess capacity in most of the property sub-sectors and highly competitive and cyclical nature of the industry.
Operating in the civil engineering and building sectors, WCT specializes in earthworks for housing development, highway construction and related infrastructure works. The group is also involved in property development as part of its efforts to diversify its revenue base.
MARC expects the overall property sector to remain soft against the backdrop of excess capacity in all property sub-sectors. Activities in the construction sector in the near term will be mainly supported by infrastructure and utility projects. Competition is thus expected to remain intense with margins squeezed in the process.
WCT’s portfolio of completed projects is impressive which includes the earthwork construction packages of the Kuala Lumpur International Airport and the International FI Circuit at Sepang. During the period under review, the group was awarded contracts in respect of the earthworks and drainage sub-packages of the proposed East Coast Expressway and government administrative building in Putrajaya. WCT’s order book balance as at 1Q2001 stood at RM970 million; 75% of which would be completed within the next two years. Most of the group’s contracts were secured under a competitive tender basis, reflective of the cost advantage that WCT enjoys over a number of its peers.
WCT’s property development activities have helped to sustain its revenue base, particularly during periods of limited construction activities. Phase 1 of its Bukit Tinggi (1) integrated township development in Klang has achieved a satisfactory overall take-up rate of 77.8% since its maiden launch in 1998. Encouraged by the good response, phase 1 of Bukit Tinggi 2 was launched in March 2001, comprising double storey-linked houses. Demand in the near-to-medium term is expected to be affected by the weak secondary market conditions in the Klang District.
A positive feature of the bonds issue structure is the annual allocation to a sinking fund equivalent to 10% of the gross proceeds from a pool of contracts identified for this purpose. A total of RM300 million worth of contracts is required to be identified on an annual basis for inclusion in the pool.
Fiscal year 2001 was a record year for the group, with revenue and profit before tax at RM422.56 million and RM56.9 million respectively; the highest for the past five years. Revenue growth in the near term will be driven by the newly awarded contracts and the development of Bukit Tinggi 2 project. Backed by the improvement in the net cash flow from operations, cash flow coverages of interest and debt strengthened to 17.96 times and 0.60 times respectively (FY2000 : 4.88 x ; 0.47 x) , despite the increase in total debt obligation. Project and development costs will continue to be a major source of strain on WCT’s cash flow. The requirement under the issue structure for a RM15 million banking facility that can be utilized to cover any shortfall arising in the sinking fund account will help to mitigate liquidity risks. The group’s debt leverage rose to 0.79 times from 0.24 times previously after the issuance of the bonds in FY2001.
Operating in the civil engineering and building sectors, WCT specializes in earthworks for housing development, highway construction and related infrastructure works. The group is also involved in property development as part of its efforts to diversify its revenue base.
MARC expects the overall property sector to remain soft against the backdrop of excess capacity in all property sub-sectors. Activities in the construction sector in the near term will be mainly supported by infrastructure and utility projects. Competition is thus expected to remain intense with margins squeezed in the process.
WCT’s portfolio of completed projects is impressive which includes the earthwork construction packages of the Kuala Lumpur International Airport and the International FI Circuit at Sepang. During the period under review, the group was awarded contracts in respect of the earthworks and drainage sub-packages of the proposed East Coast Expressway and government administrative building in Putrajaya. WCT’s order book balance as at 1Q2001 stood at RM970 million; 75% of which would be completed within the next two years. Most of the group’s contracts were secured under a competitive tender basis, reflective of the cost advantage that WCT enjoys over a number of its peers.
WCT’s property development activities have helped to sustain its revenue base, particularly during periods of limited construction activities. Phase 1 of its Bukit Tinggi (1) integrated township development in Klang has achieved a satisfactory overall take-up rate of 77.8% since its maiden launch in 1998. Encouraged by the good response, phase 1 of Bukit Tinggi 2 was launched in March 2001, comprising double storey-linked houses. Demand in the near-to-medium term is expected to be affected by the weak secondary market conditions in the Klang District.
A positive feature of the bonds issue structure is the annual allocation to a sinking fund equivalent to 10% of the gross proceeds from a pool of contracts identified for this purpose. A total of RM300 million worth of contracts is required to be identified on an annual basis for inclusion in the pool.
Fiscal year 2001 was a record year for the group, with revenue and profit before tax at RM422.56 million and RM56.9 million respectively; the highest for the past five years. Revenue growth in the near term will be driven by the newly awarded contracts and the development of Bukit Tinggi 2 project. Backed by the improvement in the net cash flow from operations, cash flow coverages of interest and debt strengthened to 17.96 times and 0.60 times respectively (FY2000 : 4.88 x ; 0.47 x) , despite the increase in total debt obligation. Project and development costs will continue to be a major source of strain on WCT’s cash flow. The requirement under the issue structure for a RM15 million banking facility that can be utilized to cover any shortfall arising in the sinking fund account will help to mitigate liquidity risks. The group’s debt leverage rose to 0.79 times from 0.24 times previously after the issuance of the bonds in FY2001.