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PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 24 Apr 2019, 9:46 AM

 

Wah Seong Corporation Berhad - Dragged By Associates

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Wah Seong’s 9MFY18 revenue of RM2.2bn was in line with our forecast, meeting 78.5% of full-year estimates though above consensus at 83.0%. Nevertheless, the Group’s 9MFY18 core net profit of RM67.5m, after stripping-out all the non-core items amounting to RM7.2m, missed both our and consensus full-year earnings projections, accounting for only 66.4% and 65.8% respectively. The variances were mainly due to lower earnings contribution from associates which fell from a profit of RM2.7m in 9M last year to a loss of RM10.4m this year. We trim our FY18 earnings projections by 15.9% to account for lower profit contribution from associates. We also lower our FY20-21 projection by an average of 25.1% as we expect lower revenue recognition from newly-secured contracts that would likely only come on stream in 2H2019. Upon completion of the NS2 project, the Group’s order book will revert to around RM500 – RM1bn per year, which may put earnings visibility at risk. While we are maintaining our forecasts for now, our TP is lowered to RM0.80 as we reduce our earnings multiple to 10x over its FY19F EPS of 16.4sen. The lower PER is justifiable in view of persistent oil price volatilities amid concerns about rising supply from the US and heightened geopolitical risks that could hamper oil price performances. Our Neutral call is also maintained as the share price is likely to still be under pressure due to lack of fresh contract wins, coupled with the uncertainties in the status of local pipeline projects.

  • Financial highlights. Overall, the YTD numbers are still stronger than last year’s corresponding period with revenue and net profit surging by 49.0% and 31.4% respectively. The better performance was derived mainly from increased activity in the Group’s major oil and gas project namely Nord Stream 2 (NS2). The project which is valued at EUR600m is currently progressing at c. 70% completion, and is still on track to complete in 2Q and 3Q next year as it involves 2 different locations.
    As for 3QFY18, the Group reported weak earnings of RM21.7m (-14.7% QoQ, 35.7% YoY) in line with lower revenue in the quarter by 7.6% QoQ and 6.4% YoY attributed to lower activities in local operation. This was further worsened by loss from associates of RM6.3m.
  • Challenging outlook ahead. Outstanding orderbook of RM1.6bn inclusive of estimated RM500m worth of new projects secured this year is expected to be recognized by 2019. The Group has a sizeable tender book of RM5.9bn from oil and gas pipeline projects such as in Australia and Europe however. For Malaysian projects i.e., Trans Sabah Gas Pipeline and Multi Products Pipeline are also included, though the status of both projects remain uncertain. Management guided that fresh orders would probably only be secured in 2H next year.

Source: PublicInvest Research - 28 Nov 2018

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