Wah Seong‟s 9MFY14 results exceeded our expectations, meeting 93% and 85% of our revenue and earnings estimates respectively. Revenue increased to RM1.7bn (+34% YoY, -9.1% QoQ), translating to earnings of RM106.8m (+>100% YoY, -24.4% QoQ). Higher revenue for the quarter was achieved through the c.70% progress of the Polarled Pipeline project (worth RM611.3m). We are reaffirmed that Wah Seong is deserving of an Outperform recommendation, but are adjusting our TP to RM2.02 in light of the uncertainty of oil price trends. Our TP implies a 14x PE multiple (previously 18x) to our FY15F EPS of 14.5sen. Performance going forward will continue to be supported mainly by the oil and gas (O&G) and renewable energy divisions, coupled with recurring income from the strategic stakes in Alam -PE (49%) and Petra Energy (26.9%).

RM1.4bn orderbook. The Group‟s current orderbook has reduced to RM1.4bn from RM1.5bn, with replenishment expected by end-2014 or 1QFY15. The tenderbook stands at RM5.5bn, comprising RM3.6bn of O&G bids, of which 50% is pipe-coating projects. We have subsequently adjusted our revenue and earnings forecast for FY14F, assuming marginally higher costs. Going forward we are maintaining our estimates assuming the amount of billings per annum is achievable, buoyed by the potential replenishment as mentioned above.

Sensitivity to oil prices are expected to be minimal, as Wah Seong‟s projects are towards the end of the value chain, hence there would be minimal impact on projects it has secured and is tendering for. Management is however anticipating potential delays for tenders going forward resulting from slowdown in new projects.

Updates. i) Polarled Pipeline project in Kuantan is completed, with the remaining 30% of completion at its Norway plant (concrete coating) which began end-July to carry on up to April/May next year. We can expect “heavier” contributions towards the tail-end of the project. ii) The Louisiana plant has secured 2 contracts worth c.USD25m thus we do not expect any major contributions from this region until FY15/FY16 onwards. iii) The Alam-PE acquisition was completed in October, therefore contributions to the Group are assumed by 4QFY14. iv) higher earnings contribution from 26.9%-owned Petra Energy for the development and production of petroleum from KBM cluster RSC, coupled with 5-year Hook-up, Commissioning (HuCC) and Topside Maintenance Services (TMS) contract by Petronas.

Source: PublicInvest Research - 1 Dec 2014