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PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 24 Jun 2021, 9:56 AM

 

Wah Seong Corporation Berhad - Within Expectations

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Wah Seong reported a loss of RM43.8m in its 1QFY20 results on the back of lower revenue (23.9% QoQ and 52.2% YoY) generated mainly due to slower project executions as well as deferment of some projects given the current operating climate attributed to the Covid-19 pandemic. The results are deemed in-line with our full-year RM35.5m net profit expectations though above consensus of RM74m. We had previously cut our FY20F-22F earnings projections in our sector piece dated 8th April by -52.4%/-33.3%/- 33.3% in anticipation of weak numbers owing to delays in work activities (only ~20% are operational). Operations in Malaysia, India and Qatar were stopped due to lockdowns. The Group’s orderbook of RM900m is relatively unchanged, and expected to be executed mostly in 2HFY20. Tenderbook remains at RM4.5bn though award timings remain a key question for now. Nevertheless, we believe the market has already priced-in all the negatives, hence we foresee downside to the share price currently limited. We maintain our Neutral rating for Wah Seong at an unchanged TP of RM0.77 based on 9.6x PER over FY21 EPS of 8 sen.

  • Slower project executions. Revenue for 1QFY20 dropped 23.9% QoQ and 52.2% YoY due to slower project executions as well as deferment of some projects given the current operating climate attributed to the Covid-19 pandemic. This was further exacerbated by the completion of the Group’s major project, Nord Stream 2 in 3QFY19 and lack of major projects currently. Overall, the Group reported a loss of RM43.8m in 1QFY20, in tandem with lower revenue generated.
  • Earnings prospects appear shaky. The Group’s orderbook of RM900m is relatively unchanged, and only expected to be executed mostly in 2HFY20. We note that it had lost its tender for Yinson’s Marlim 2 project for the FPSO topside modules’ installations to other parties who will now execute the job in China, quickening the FPSO construction progress given the re-opening of China’s economy earlier than Malaysia. While orderbook replenishment appears shaky, it is expected that the Group will continue to undertake multiple small-scale contracts that will not need them to announce (
  • Just a matter of timing. The Group’s tenderbook of RM4.5bn is still significant and it is understood that all are still active. These include pipeline jobs in Australia (Barossa and Ichthys Phase 2 pipeline) and Europe (Baltic pipe). Nevertheless, questions on award timing remain. The most significant one, the Qatar Petroleum project with contract value thought to be worth around RM1.2bn – RM1.4bn, is still active with the construction of coating plants in Doha still on-going albeit at a slower pace. This project is expected to translate c. RM720m - RM840m for Wah Seong based on its 60% stake in the JV company bidding for the job.

Source: PublicInvest Research - 21 May 2020

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