PublicInvest Research

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


Wah Seong Corporation Berhad - Within Expectations

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Stripping off impairments and other exceptional items totaling RM265.8m, Wah Seong’s 3QFY20 results saw improvements as it reported core net profit of RM10m, turning around from core net loss of RM33.5m in the previous quarter. With the profit recorded, the Group’s 9MFY20 core net loss narrowed to RM67.3m as opposed to the RM48.5m core net profit for 9MFY19. This is in line with a 50.9% YTD drop in revenue to RM1bn. The lackluster performance is mainly due to global lockdown attributed to Covid19 pandemic hence slower project executions as well as deferment of some projects. The numbers are within our expectations of a full-year loss of RM37.9m though above consensus RM112.8m loss forecasts. We maintain our estimates we foresee earnings recovery continuing in 4QFY20, backed by its outstanding orderbook of RM1.1bn. Tenderbook remains healthy RM4bn with significant awards expected in FY21. We maintain our Neutral rating for Wah Seong with an unchanged TP of RM0.50 based on 10x PER over FY21 EPS of 5sen.

  • Improved 3Q earnings. The Group reported improvements in 3QFY20 with core earnings turning positive to RM10m from a loss of RM33.5m in 2QFY20. This is in tandem with higher revenue reported of RM453.3m (+86.5% QoQ) as global movement lockdowns eased. Gross profit margin improved 7.5ppt to 15% thanks to the Group’s initiative in implementing cost reduction measures during the quarter. Net profit margin inched back up to 2.2%, similar to 3QFY19.
  • Increasing orderbook. The Group’s orderbook surged to RM1.1bn from RM870.2m as of June 2020 despite a RM453.3m burn rate during the quarter. This suggests that there are works still available in the market, notwithstanding with the current challenging period. We gather there were about USD100m worth of new orders coming in, with combination of oil and gas engineering particularly on the fabrication of topside modules’ as well as pipeline project in Australia.
  • Better 2021 outlook. With the earnings turnaround it made in 3QFY20 coupled with its successful wins recently, we foresee the Group’s recovery is on track. We see improving outlook in FY21 with more awards to come from the Group’s RM4bn tenderbook. While it will continue to undertake multiple small-scale contracts worth

Source: PublicInvest Research - 25 Nov 2020

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