Wah Seong’s subsidiary, WS Engineering & Fabrication Pte Ltd has been awarded a contract worth USD127.1m or approx. RM557.6m by Yinson Azalea Production Pte. Ltd., for the supply of certain FPSO topside modules. We welcome this development, representing Wah Seong’s second sizeable contract win in 2022. With this, Wah Seong’s outstanding orderbook is expected to increase by 18.8% and remain healthy at c. RM3.5bn. We maintain our forecasts, nonetheless, having imputed this project as part of our FY22 orderbook replenishment. We foresee earnings recovery this year going into next year being on track, supported by its healthy orderbook. Tenderbook of RM4.5bn remains, with significant award possibly the Qatar pipeline project. We maintain our Outperform rating for Wah Seong with an unchanged TP of RM0.70 based on 12x PER over FY23 EPS.

• The contract. The scope of work involves engineering, procurement, and construction of certain FPSO topside modules, which we think may include electrification, water processing, electrification, and flaring units, etc. The contract is estimated to be completed within 24 months with earnings contributions up to 4QFY24.

• Growing orderbook. With this notable win, Wah Seong’s outstanding orederbook is expected to increase by 18.8% and remain healthy at c. RM3.5bn, translating to 1.5x of expected FY22 revenue. Assuming a 7% net profit margin, this project will contribute around RM19.5m each year in FY23 and FY24. We maintain our forecasts, nonetheless, having imputed this project as part of our FY22 orderbook replenishment of RM1bn.

• Our take. The Group has previously had history with FPSO owners such as Modec, Bumi Armada and Yinson, with credibility and capability in handling their topside modules. As such, the winning of this contract is not a major surprise. That said, we are pleased with this development as it represents the Group’s second sizable contract win this year after the pipeline thermal insulation services for the EACOP project worth ~RM1.1bn (~RM532m net to Wah Seong) in February this year. Tenderbook remains substantial at RM4.5bn with notable award possibly the Qatar North Field Expansion pipeline project. The pipeline contract consists of two 38-inch pipelines which will have total lengths of about 103km and 98km, while a single 32-inch line having a total length of almost 81km.

Source: PublicInvest Research - 8 Dec 2022