Excluding exceptional items amounting to RM74.9m, Wah Seong (WSC) reported core net profit of RM26.7m for 4QFY22, from a core net loss of RM1.7m reported in 4QFY21. This is on the back of higher revenue of RM794.7m, +74.6% YoY. Both oil and gas (O&G) and renewable energy segment recorded strong growth at +86.2% and +57.7% respectively. On QoQ basis, core net profit grew by +57.4%, which is mainly driven by the oil and gas (O&G) segment. Overall, WSC reported core net profit of 56.8m in FY22, against core net loss of RM15.9m in FY21. The results exceeded our and consensus expectations, meeting 138% and 110% of estimates. The deviation is mainly due to higher revenue recognised for FY22 against our expectation. Despite the encouraging performance, we keep our Neutral call and TP of RM0.70 based on PE multiple of 12x over FY23 EPS due to limited upside in growing its orderbook further, currently at RM3.4bn.

• Results highlight. 4QFY22 revenue grew +14.2% QoQ, led by the O&G segment. Some projects progressed well, like the Qatar project though progress for the EACOP project is slower than expected at just additional 5% completion during the quarter (versus total project size of RM1.2bn). As for Yinson’s FPSO topside module, project progress remains at preliminary levels, with contributions insignificant. We expect it will expedite the progress from 2QFY23 onwards however.

• Stable margin. The Group is confident that it can contain any increase from cost of material to sustain its margins. This is due to the nature of its signed contracts which typically include any adjustments based on the respective raw material index adjustment for the countries (where work orders are) in question. In a way, margins are protected against inflation of raw material cost. In the event of volatile movement of the raw material cost, it will apply caps on both the upper and lower limits, which is more equitable for both parties especially for sizeable and long tenured contract exposure.

• Limited orderbook growth. The Group’s outstanding orderbook is currently stand at an all-time high of RM3.4bn despite the burn rate of RM794.6m this quarter. This will keep the Group busy for the next 1-3 years at least. Although the outlook remains robust on the back of this, we believe the orderbook is unlikely to break above RM4.0bn due to limited operational capacity for now.

Source: PublicInvest Research - 24 Feb 2023