Wasco posted another strong core net profit after tax and minority interest (PATAMI) of RM27.1m, higher by 6.7% QoQ and 132.0% YoY as its margin continued to expand for a third consecutive quarter due to better project mix and cost control in the energy services segment. Due to the continuous margin improvement, the result exceeds our full year estimate at 30%, though broadly meeting consensus at 28.5%. Wasco’s orderbook remains strong at RM3.1bn including the recent project win in Qatar for COMP1, part of North Field Expansion Project (NXFP). We expect margins to improve further due to high demand for its pipe coating services on the back of RM7.0bn tenderbook. As such, we raise our earnings forecast by 30.4%/31.0%/54.3% for FY24F/FY25F/FY26F respectively. We maintain our Outperform rating with higher TP of RM2.10 (from RM1.70) as we peg with slightly lower 14x (+2SD) multiple of FY25 EPS.

• Streamlining its business. During the quarter, Wasco recorded oneoff gain on land disposal of RM29.0m (net of tax) as part of its initiativeto streamline its business. It has also classified its trading segment as adiscontinued operation and held for sale item. We are positive on thisinitiative, allowing Wasco to re-channel its capital and resources towardsits core business i.e energy and bioenergyservices.

• Energy services lift earnings. Wasco’s energy services segmentalrevenue increased to RM592.3m, higher by 24.9% YoY due to higherproject progress for the current quarter. Among notable progress is theEACorp project, which has progressed to 45% with an RM150mremaining value to be completed in 1H2026. Another project is YinsonAgogo, which has reached 65% completion with target completion by2H2024. Earnings are also improving with profit before tax margin higherby 5.0 ppts, resulting from better project mix.

• Orderbook continues to sustain above RM3.0bn. Wasco recentlysecured a 203km pipe coating project under Comp 1 as part of NXFP inQatar. We reckon that Wasco’s orderbook would remain sustainable atabove RM3.0bn in the next 2-3 years on the back of its RM7.0bn tenderbook. This is driven by accelerated projects from selected countries toensure energysecuritydue to increasing geopolitical risk.More projectswill be awarded in 2H2024, which is timely in our view as few of keyprojects such as NXFP and Yinson Agogo are scheduled to becompleted in the same period. We also believe Wasco would be able tosecure better project pricing in future to sustain its margin at theexpected level.

Source: PublicInvest Research - 31 May 2024