PublicInvest Research

Author: PublicInvest   |   Latest post: Tue, 22 Jun 2021, 9:57 AM


Wah Seong Corporation Berhad - Better Numbers in 2H

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Wah Seong reported core net loss of RM33.5m in 2QFY20, widening its core net loss for 1HFY20 to RM77.3m as compared to the 1HFY19 core net profit of RM33.2m reported. The weak performance was mainly due to global lockdowns, attributed to the Covid-19 pandemic which slowed project executions as well as deferred some projects. While losses in 2QFY20 are largely anticipated, we are of the view that recovery may take some time, considering the level of oil prices currently as well as the new operating environment after the pandemic. We cut our FY20F estimates to a loss of RM37.9m from a profit of RM35.3m. Meanwhile, we also slash FY22F/23F earnings projections by 37.7% and 3.2% respectively. The Group’s outstanding orderbook of RM870.2m is relatively unchanged, likely be executed mostly in 2HFY20. Tenderbook remains at RM4.5bn though timing of the awards remain a question given the planned capex reduction by oil majors globally. We maintain our Neutral rating for Wah Seong with a lower TP of RM0.50 (10x FY21 EPS) due to the earnings cut.

  • Full impact from lockdown. While 2QFY20 revenue slipped 25.6% QoQ to RM243.1m, core net loss of RM33.5m reported in the quarter was lower than core net loss of RM43.8m in 1QFY20. This is mainly due to the Group’s initiative in implementing cost reduction measures during the quarter. Lower revenue recognition in 2QFY20 is not a surprise given the full impact of movement lockdowns globally, hence slower project executions. This is further exacerbated by completion of the Group’s major project, Nord Stream 2 in 3QFY19 and lack of major projects currently.
  • Gradual recovery in 2HFY20 onwards. While the Group’s earnings are expected to be better in 2HFY20 as lockdowns begin to ease, we foresee recovery taking some time, considering the level of oil prices currently as well as the new operating environment after the pandemic. As the Group’s core business is mostly related to greenfield oil and gas projects, contract awards from the Group’s RM4.5bn tenderbook remains a question given the planned capex reduction by oil majors globally by 20% - 30%. Nevertheless, it is expected that the Group will continue to undertake multiple small-scale contracts that are worth

Source: PublicInvest Research - 28 Aug 2020

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