News

• Wah Seong announced that it has secured a sub-contract worth approximately RM189m for the supply and delivery of coated steel pipe for the Pengerang Deepwater Petroleum Terminal Project.

• The sub-contract is expected to be completed by 3Q16. Financial Impact

• The contract win will increase O&G orderbook from RM710m to RM900m (circa 1.5x of FY15 O&G revenue).

• This will be part of and in line with our assumption on orderbook replenishment.

Pros/Cons

• We are positive on the contract award as this will help to replenish depleting O&G orderbook amidst weak oil price environment.

• The latest tenderbook is about RM5bn with 80% related to O&G jobs. In view of the low oil price and spending cut by E&P player, we are cautious on the orderbook replenishment rate.

• Potential exercise to spin off non O&G asset to unlock value might not materialize in the near term given current market sentiment.

• Plantation division still in gestation period and will remain in the red over the next few years before breakeven. This is mainly due to initial start-up cost. The company plans to plant another 7,500 hectare in 2014-2016.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD

Positives

• Strong balance sheet and acquisition record.

Negatives

• Acquisition fuelled growth - volatile in downturns.
• Capex burden developing Congo oil palm.

Valuation

• Maintain HOLD call with unchanged TP of RM1.39 based on unchanged 9x FY16 P/E.

Source: Hong Leong Investment Bank Research - 19 Aug 2015