News

• WASEONG announced that further to its announcement made on 4 December 2015 in relation to the award of contract by Statoil Petroleum AS Norway to its pipe coating business unit for the total Scope of Coating Work for the Johan Sverdrup Export Pipeline Project (“JoSEPP”), its business unit has been further awarded a contract valued at approximately US$18.2m (circa RM73.9m) for the provision of pipe shipping and related services for JoSEPP.

• The contract involves shipping of pipes to a port at west coast of Norway and subsequent offloading. The activity is expected to commence in the second quarter of 2017 and be completed by first quarter of 2018.

Financial Impact

• Assuming a conservative PBT margin of 10%, financial impact to the group is estimated to at RM7.4m.

• This would only help to partially sustain the group’s O&G revenue base.

Pros/Cons

• Further contract win is a big positive but is deemed within expectations as it is still within our orderbook replenishment assumptions. The win is also regarded as insignificant for us to further increase our orderbook replenishment assumption.

• The latest tenderbook is about RM5bn largely concentrated on O&G jobs.

• In view of the low oil price and spending cut by E&P player, we remain cautious on the orderbook replenishment rate. On the other hand, profit margins would be weaker for its O&G pipe coating division amid cost rebasing by its clients to weather the downturn.

• Its associates comprising of Alam Maritime JV and Petra Energy continue to be a drag on its earnings due to slowdown in activities.

• Plantation business in Congo remains a drag to its earnings and not expected to breakeven until 2018 as it is still going through gestation period for its young oil palm trees to mature.

Risks

• Political risk, Congo Oil Palm Plantation which is still in the early stage.

• Pipe coating contract margin risk.

Forecasts

• Earnings forecast maintained.

Rating

• Sell

• Positives – Relatively resilient pipe coating demand which is still essential form oilfield maintenance despite low oil prices.
• Negatives – Acquisition fuelled growth - volatile in downturns; Margin erosion risk on O&G jobs.

Valuation

• Our TP is maintained at RM0.58 based on unchanged 9x FY17 PER. Margin compression is still a concern and its JVs focused on O&G OSV asset business would still be a drag.

Source: Hong Leong Investment Bank Research - 25 Jul 2016