• Look beyond 2016. WASEONG (WSC) is one of HLIB institutional oil & gas stock picks with a TP of RM1.00 (9x FY17 P/E). We opine that the 3- year Nord Stream 2 AG 2,400km pipe coating contract is a powerful rerating catalyst to WSC as it provides more future’s earnings certainty, thereby reversing the dim prospects of the group’s plantation, renewable energy and industrial trading & services divisions. Although the contract value has yet to be finalized (likely be announced within weeks), we believe the total contract value could be ~RM2.6bn, which is a strong boost to existing order book of RM0.9bn.

• Currently, WSC has a tenderbook of about RM5bn. Based on its track record, its job winning momentum could be sustained through next year whereby oil prices are expected to improve due to narrowing of oil supply growth. At RM0.855, WSC is trading at 0.61x P/B, a substaintial 48% discount to its peers.

• Cup and handle pattern signals brighter future ahead. The Cup with Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout that turns from a bearish bias to a bullish bias. We believe WSC is in the midst of staging a Cup and Handle pattern breakout as share price is closing above all the key 10-d/20-d/30-d/50- d/100-d/200-d SMAs.

• Key upside target is RM0.905 (23 Feb 15 high). A decisive breakout above RM0.905 will spur prices higher to RM0.93 (2 Aug 16 high) and our LT objective at RM0.975. Meanwhile, key supports are RM0. 84 (200- d SMA) and RM0.825 (20-d SMA). Cut loss at RM0.81.

Source: Hong Leong Investment Bank Research - 17 Aug 2016