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Author: PublicInvest   |   Latest post: Wed, 20 Nov 2019, 9:59 AM

 

Wah Seong Corporation Berhad - As Expected

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Wah Seong’s 1QFY19 revenue and core net profit of RM683.8m (-13.8% YoY) and RM19.1m (-6% YoY) respectively were in line with our forecast, meeting 33% and 31% of full-year estimates. We deem the results as in line as we expect earnings to deteriorate in the remaining quarters given the Nord Stream 2 (NS2) project coming to its tail-end. We are concerned over the fast-depleting order book which can only sustain the company for this financial year. Although the company has a sizeable tenderbook value of c. RM6bn, contract awards may only happen in 2H this year, translating to significant contribution in the next financial year at the earliest, if any. Earnings visibility may be at risk. While we are maintaining our forecasts at this juncture in anticipation of replenishments, our TP is lowered to RM0.74 as we reduce our earnings multiple to 8x over its FY20F EPS of 9.2sen. The lower PER ascribed is justifiable given its unexciting earnings outlook. Our Neutral call is also maintained.

  • Results highlights. Revenue for 1QFY19 dropped 13.8% YoY attributed to lower contribution from the Group’s oil & gas segment which recorded an 18.3% decrease. This was mainly due to continued lower levels of activity in the Asia Pacific Region. In tandem with that, core net profit slipped by 6%. Profit margins were stable nonetheless with gross, pre-tax and net margin at 12.2%, 3.8% and 2.8% respectively in 1QFY19 versus 10.6%, 4.5%, and 2.6% in 1QFY18.
  • Nord Stream 2 at the tail end… The Group’s major oil and gas project - NS2 which was valued at EUR600m is currently progressing at >80% completion, on track to complete in 2Q and 3Q this year as it involves 2 different locations. Nevertheless, we notice that the Group’s outstanding orderbook of RM1.1bn is unchanged from 4QFY18’s orderbook despite a c. RM600m burn rate. We reckon the Group has secured multiple small scale contracts during the period, likely to have come mostly from the engineering and pipe manufacturing unit. Nonetheless, we estimate the cumulatively value could be
  • …putting earnings at risk. Although the company has a sizeable tenderbook value of c. RM6bn from oil and gas pipeline projects such as in Australia and Europe, contract awards may only happen in 2H this year, translating to significant contribution in the next financial year at the earliest, if any. Earnings visibility may be at risk. We expect earnings to deteriorate in the remaining quarters hence the maintaining of our earnings forecast. Our TP is lowered to RM0.74 as we reduce our earnings multiple to 8x given its unexciting earnings outlook. Maintain

Neutral.

Source: PublicInvest Research - 14 May 2019

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