News

Wah Seong (WSC) announced that it has been awarded a pipe coating contract for 250km of pipes for EVA-NMB Gas Delivery System (ENGDS) project within North Malay Basin by Petronas Carigali.

The quantum of the contract is RM232.1m. The project is expected to commence in 4Q13 and be completed by 2Q14.

Comment

We view the contract award positively. This is the second contract won after it has been awarded a US$200m pipe coating contract by Stateoil in Feb 13.

The ENGDS is a new integrated gas development project in Peninsular Malaysia. This project will see the development and commercialisation of nine stranded gas fields together with the development of a new gas gathering, processing and transportation hub and it will involve the construction of 300km of pipeline and a new onshore slug catcher.

This contract has increased the orderbook for oil and gas division from RM1bn to RM1.23bn. However, we maintain our forecast as we have factored in the contract win in our assumption.

We remain conservative on the margin assumptions for the pipe coating and manufacturing business after a disappointing 1H13 result. To recap, operating margin decreased from 7.7% to 3.9% in 2Q13 due to lower margin from pipe coating, manufacturing business and additional operation cost in plantation segment.

The company orderbook currently stands at RM1.7bn with 72% from oil and gas division, 17% from renewable energy and 11% from industrial trading & services. Although we expect the Renewables division to continue to contribute strongly, a stronger catalyst will come from winning higher margin pipe coating jobs in Turkmenistan and the Gulf of Mexico (GoM). The two Gulf of Mexico (GoM) plants are completed and operational. This region may turn out to be the land of milk and honey due to the deepwater, high temperature nature of oil fields which require specialised higher margins solutions.

Risks

• Political risk, Congo Oil Palm Plantation.
• Execution risk.

Forecasts

Unchanged.

Rating

HOLD

• Positives –
  • Infrastructure growth related to new fields.
  • Strong balance sheet and acquisition record.
• Negatives –
  • Acquisition fuelled growth - volatile in downturns.
  • Capex burden developing Congo oil palm.

Valuation

• Maintain HOLD call with an unchanged TP of RM1.66 based on unchanged 13x FY14 EPS of 12.8 sen/share.

Source: Hong Leong Investment Bank Research - 23 Sep 2013