Wah Seong’s indirect subsidiary, ISOAF S.r.L and ISOAF TZ Limited, have been awarded a midstream contract by East African Crude Oil Pipeline (EACOP) LTD valued at USD254.1m or approximately RM1.1bn. The contract is for the provision of line pipe thermal insulation services for the EACOP project and Feeder Line, located between the town of Kabaale in Uganda and the port of Tanga in Tanzania. We applaud this development given the size of the contract, which would increase its outstanding orderbook by 64.7% hence providing earnings visibility up to 3 years. We keep our forecasts unchanged, pending further details by management. We have assumed RM1bn job replenishment for FY22 which includes a contract from the Qatar North Field Expansion project as well as other contracts from its RM4bn tenderbook. We maintain our Outperform rating with an unchanged TP of RM0.91 based on 12x FY22F EPS. The Group is slated to announce its 4QFY21 results tentatively on 24th February 2022.

• The EACOP project is a 1,443km, 24-inch diameter heated and buried crude oil export pipeline that will start from Kabaale, Hoima in Uganda to Chongoleani, Tanga in Tanzania. The pipeline will have a manifold in Kabaale, Hoima, six pumping stations (two of which will be in Uganda), 27 heating stations and two pressure reduction stations. Total investment for the construction of the pipeline is USD3.5bn.

• The contract which is awarded to the Group’s indirect subsidiary is for the provision of line pipe thermal insulation services for the EACOP project and Feeder Line, valued at USD254.1m or approximately RM1.1bn. The work and services to be performed are within the Group’s coatings division. The work and services are expected to be completed within 30 months, commencing 18 February 2022 and will be completed in July 2024.

• Outstanding orderbook jumps by 64.7%. With this notable win, Wah Seong’s outstanding orderbook is expected to remain healthy at RM2.8bn (RM1.7bn as of 3QFY21), translating to about 2x of its FY21E revenue. That said, we understand that the Group’s effective stake in the subsidiary is 50.1%. Hence, total value attributable to the Group is about RM532m. Assuming this value and a 5% net profit margin, this project will contribute around RM26.6m to the Group’s FY22 to FY24 earnings. Pending confirmation by management, we keep our forecasts unchanged. We have assumed RM1bn job replenishment for FY22 which includes a contract from the Qatar North Field Expansion project as well as other contracts from its RM4bn tenderbook.

Source: PublicInvest Research - 23 Feb 2022