Excluding gain on disposal of assets amounting to RM6.4m as well as other one-off items, Wah Seong (WSC) reported core net loss of RM11.9m in its 3QFY21 results, widening its core net loss for 9MFY21 to RM14m. The results are below our and consensus estimates of a full year profit of RM15m and RM13m respectively. The weaker performance was mainly due to delay in project executions because of a stricter SOPs implemented. The Group’s outstanding orderbook expanded further to RM1.7bn with inclusion of the first contract from Qatar North Field project, valued at ~RM250m. While orderbook has been growing steadily from RM1.2bn at the beginning of the year, executions of most projects are now moved to next year. As such, we adjust our FY21 earnings forecast to a net loss of RM19.6m while FY22/23 net profits are adjusted lower by 9.3% and 5.0% respectively, reflecting the slower progress billings. Tenderbook remains at c. RM4bn with more opportunity to come from the Qatar project. We maintain our Outperform rating with a revised TP of RM0.91 based on 12x FY22F EPS (from RM1.00 previously).

• Weaker 3QFY21. Revenue was lower 9.8% QoQ, reflecting slower execution for the projects secured this year. The Group reported core net loss of RM11.9m, deteriorating from a core net loss of RM4.2m in the previous quarter. Weaker performance was mainly due to stricter SOPs implemented, which slowed project executions.

• First Qatar North Field project in the bag. The Group’s outstanding orderbook expanded further to RM1.7bn (from RM1.4bn in 2QFY21) with inclusion of the first contract from Qatar North Field Expansion, specifically for Field Production Sustainability (NFPS, valued at ~RM250m. With this, we foresee more contracts to come from this project with the second expected to be awarded in 1H 2022. We are of the view that job opportunities in Qatar remain substantial with an estimated USD300m worth of contracts up for grabs within 1 - 3 years. We anticipate this contract could fetch much better margins within the 18% - 20% region at gross level as there are no obligations on client financing unlike the Nord Stream 2 project (profit margin was c. 11%). Other notable wins for this year include a USD39.4m contract in Gabon, Africa and USD35.9m contract for modules fabrication works in the United Kingdom. Inclusive of other smaller contracts, we estimate it has been replenishing around RM500m – RM550m worth of contracts to its orderbook.

• Earnings outlook. FY21 earnings have been hampered by COVID-19 restrictions and strict SOPs, hence delaying project executions. FY22 will be a better year given the relaxation of SOPs, hence most projects moving into higher gear. Tenderbook remains substantial at RM4bn with more contract awards likely next year.

Source: PublicInvest Research - 23 Nov 2021