Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Tue, 22 Jun 2021, 10:19 AM


Wah Seong Corporation - Recovery in 4QFY20

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Its recovery trajectory continued in 4QFY20 on the back of higher job deliveries, after suffering from the lack of new projects in the previous several quarters. Moving forward, its order book of ~RM1.2b gives <1-year revenue visibility. As such, we believe the group have to successfully secure major new contracts from its current tender-book of ~RM4b in order to sustain the current recovery trajectory. Maintain MP, with TP of RM0.72, with current valuations already pricing in very aggressive recovery traction.

FY20 slightly beat expectations. FY20 Core Net Loss of RM54.9m slightly beat expectations, coming in at 92% of our, and 80% of consensus, full-year loss forecast, from better-than-expected jobs delivery. No dividends were announced, as expected.

4QFY20 stayed on recovery path. The 4QFY20 quarter recorded a Core Net Profit of RM17.2m, jumping 85% sequentially from 3QFY20, on the back of higher jobs delivery, especially in its oil and gas segment. Cumulatively, however, full-year FY20 still recorded losses, due to the lack of new projects resulting from deferment of capex from global oil and gas companies amidst the on-going pandemic.

Further job wins needed to sustain recovery. Currently, its order- book stands at RM1,150.8m. This gives a <1-year revenue visibility. As such, in order to continue sustaining the current recovery trajectory, we feel that the group have to successfully secure new projects from its current tender-book of ~RM4b. Currently, the group is actively tendering for jobs globally in key regions e.g. Africa and Australia. Meanwhile, the group is also tendering for the pipe coating job for Qatargas’ North Field Expansion project, with contract award expected in 1HFY21.

Maintain MARKET PERFORM, with higher TP of RM0.72 (from RM0.43 previously). In tandem with the group’s recovery trajectory moving forward, we raised our ascribed valuation to 0.7x PBV, roughly in line with its 5-year mean (from 0.5x at -1.5SD previously). Post results, we raised our FY21E earnings by 42%, pricing in an aggressive recovery, while introducing FY22E numbers (>2x earnings growth).

Note that failure to secure any significant order-book replenishment in the next 3-6 months pose material downgrade risk to our call and earnings estimates.

Risks to our call include: (i) failure of order-book replenishment, (ii) slower-than-expected jobs execution, (iii) costs overrun, (iv) further impairments or deterioration to its book value.

Source: Kenanga Research - 24 Feb 2021

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