WCT ... Mar11

Bahrain has declared a three-month state of emergency following the unrest that began two months ago (Jan 2011). The king of Bahrain has authorised the army head to guarantee security as a second contingent of GCC troops arrived after two months of anti-government protests.

The protests are not in the vicinity of the soon-to-be-completed BCC project where only interior fit-out works are outstanding. WCT is left with three staff on site who are monitoring the completion of the project.

The outstanding works amount to RM37 million, which will contribute about RM2.5 million to the bottom line. The scope of works also involves testing and commissioning of the entire complex.

Management has pre-planned an evacuation/contingency move should the situation worsen but does not think that it will, at least as far as the impact on its job is concerned. The group has contingency funds for this in the form of the 10% advance payment received at the onset of the project. If there is need to evacuate, it should be swift as the major machinery used during the construction of BCC had been moved elsewhere at end-2009.

In the Gulf region, WCT has three jobs outstanding with the total balance of works being RM1.6 billion, the bulk of which is located in Qatar. The only project outstanding in Bahrain is the BCC interior fit-out works.

Total outstanding jobs in Qatar and Bahrain make up 42% of WCT’s total outstanding order book of RM3.7 billion. Although in terms of exposure, WCT’s Middle East exposure exceeds that of Muhibbah Engineering (M) Bhd, IJM Corp and Gamuda Bhd, management still holds the view that the likelihood of a spillover of the social/political unrest to Qatar and other Gulf countries is remote at this juncture as the political and social circumstances in those countries are different.

In the worst case, it would need to make a provision equivalent to less than 2% of FY11 net profit and less than 1% of realisable net asset value (RNAV) for the Bahrain project.

Bahrain makes up only 1% of WCT’s outstanding order book.

An easing of the tension in the Middle East could spark a share price recovery, along with success in clinching new contracts.

Meanwhile the 2020 marks the first time the FIFA World Cup football tournament is going to the Gulf, and Qatar is already getting ready to go all out to impress.

It is reportedly looking to spend over US$100 billion on construction and infra over the next 11 years.

What’s in sore for Malaysian construction groups with exposure to the Middle East, specifically Qatar?

WCT Bhd is likely to aggressively bid for contracts, given its prior experience and exposure in Qatar.

WCT has large exposure in Qatar than elsewhere in the Middle East, with RM1.53 billion or over 40% of its outstanding order book due from Qatar projects.

WCT is keen to participate in games related projects, such as the construction of new stadium, and urban rail system, road systems and other public infra.

In 2011, WCT expects construction activities in Malaysia and abroad to contribute about 65% to 70% of its total operating profit, with the remaining coming from its property development, retail, hospitality and concession management segments.