Wasco reported core net profit of RM13.6m, 49.5% higher YoY, although it recorded lower revenue by 8.1% YoY due to slow start on project execution within its orderbook. Energy Solutions Services (ESS) was a drag on topline and pretax (PBT) numbers, by -18.4% and -76.0% YoY respectively. Nevertheless, the impact at PBT level has been mitigated by contribution from Renewable Energy (RE) which was +50.7% higher YoY. Cumulatively, Wasco reported core net profit of RM27.7m in 1HFY23, lagging our and consensus full year estimates at 41.5% and 34.7% respectively. We make no changes to our estimates as we gather that most of the key projects will go into full swing in 2H2023. Both tenderbook and orderbook are at historical highs of RM7.0bn and RM3.9bn respectively. In spite of the upcycle, we have yet to see significant improvements in its margin and work progress. We downgrade our call to Neutral due to limited upside to our unchanged TP of RM1.00 pegged on 11x multiple of FY24 EPS.

• QoQ results highlight. On a sequential basis, 2QFY23 revenue was higher by +5.9% QoQ, though core net profit dipped slightly by 3.3%. The lower margin is mainly contributed by the ESS segment, believed to be arising from timing difference between its work progress and cost recognition.

• Project highlights. During the quarter, Wasco secured 2 significant projects worth about RM350m, namely Shell Rosmari-Marjoram and Shell Crux Pipeline. The projects are expected to commence in September and October 2023 respectively. As for existing projects, East African Crude Oil Pipeline (EACOP) has made significant progress at 30% completion, while Topside Module Yinson FPSO has progressed to about 12% completion with no change on the original timeline.

• Tenderbook to watch. Within the RM7.0bn tenderbook, 60% involves engineering and fabrication works, while the remaining 40% are mainly in RE. In the next 6-12 months, Wasco is looking to participate in few projects such as Kawasari Phase 2, NFPS in Qatar and Lang Lebah towards the end of 2024.

• Streamlining its business. Wasco revealed its transformation plan including the divestment of its non-core business. From the guidance given, the cumulative value for divestment is likely to be around RM100m though with no specific assets identified. Nevertheless, we believe the value may include its 27%-owned associate Petra Energy, which was reported for sale by media since 2021.

Source: PublicInvest Research - 25 Aug 2023