MARC has reaffirmed the ratings of WCT Engineering Berhad’s (WCT) Islamic Fixed Rate Serial Bonds of RM100 million at A+ID and 7-year Islamic Commercial Papers/Medium-Term Notes Programme of up to RM100 million (Islamic CP/MTN) (collectively known as Islamic Securities or IS) at  MARC-1ID /A+ID with a stable outlook. The ratings reflect WCT’s sustained competitive position in the domestic construction sector and abroad, the credible reputation and track record it has built as a residential property developer through its Bandar Bukit Tinggi (BBT) township development, and its robust financial profile. Moderating factors include volatility in building material prices and operational risks associated with its construction projects overseas. The ratings outlook is stable.

Domestic construction companies have faced increased challenges in the past two years in the form of persistent price increases in respect of building materials, and intense pricing competition within an already low-margin environment. WCT has kept a tight rein on costs, and continues to demonstrate the resilience of its business position, as reflected in its outstanding order book which reached RM3.5 billion as at March 2007. Of WCT’s outstanding order book, RM2.0 billion came from domestic contracts and RM1.5 billion, overseas contracts. Going forward, WCT is targeting a 50:50 ratio of domestic jobs to offshore jobs. WCT’s overseas projects are mostly concentrated in the Middle East countries of Bahrain, Qatar and Dubai in the United Arab Emirates (UAE).  WCT recently secured its third F1 Circuit project, the RM1.3 billion Abu Dhabi F1 Circuit project. WCT’s strategy for its overseas ventures has been to establish local joint venture (JV) partners in order to reduce operational risks.

Whilst WCT’s property development activities have been centered around its BBT township, Bandar Parkland will represent the group’s next sales thrust. As at April 2007, BBT 1, BBT 2 and Bandar Parklands registered take-up rates of 99.5%, 95.8% and 75.2% respectively. In an attempt to shift its focus away from Klang, WCT will be launching an RM1.26 billion commercial project, The Paradigm in Kelana Jaya and a high-end residential development, The d’Banyan Residency@Sutera in Sutera Harbour by end of 2007. There has been no additional land bank acquired since our last review carried out in August 2006 as WCT remains selective. Recurring income is expected from the rental of AEON Bukit Tinggi Shopping Centre, which is targeted to open in December 2007. 

WCT’s strong financial profile is characterised by improved earnings visibility and enhanced financial flexibility. WCT recorded higher revenue of RM1,400 million (RM825 million in FY05) and profit before tax amounting to RM149.8 million (RM127.8 million in FY05) in FY06 mainly derived from construction activities in the Middle East including revenue recognition from 51% subsidiary Cebarco-WCT W.L.L.. With its existing strong order book, WCT is expected to sustain its performance in FY07 and FY08. The Group had unencumbered cash balances of RM35.3 million and deposits of RM300.5 million as at 31 December 2006. Unutilized facilities stood at RM1,503.5 million as at 30 June 2007. The Group’s financial flexibility is expected to be further enhanced following its proposed RM155.1 million ICPS and US$100 million convertible bonds issuance programme.