Results

• Deemed within. 1Q17 core net profit of RM6.4m accounted for 10.2% of HLIB estimate and 8.2% of consensus.

Deviations

• Deemed within as Nord Stream 2 contribution only starts in 2Q17.

Dividends

• None.

Highlights

• YoY: The group posted profit of RM6.4m from a loss of ? RM2m a year ago due to higher O&G PBT driven by better project margins and higher JV contribution thanks to improvement in Petra Energy and Wasco JV.
• QoQ: Turnaround to profit from loss was also seen mainly underpinned by (i) turnaround in O&G segment due to higher margins and (ii) narrower losses in industrial trading segment due to seasonally stronger revenue.
• Its first pipe coating plant has commenced operations in Finland in 2Q17 servicing the Nord Stream 2 project (worth EUR 600m spanning 3 years).
• By 3Q17, 2nd plant in Germany would commence operations, further accelerating its revenue recognition for Nord Stream 2 contract.
• The 2 plant?s CAPEX has been fully funded by Nord Stream 2 project owner (Nord Stream 2 AG led by Gazprom from Russia jointly with other energy companies) through cash advance to Wah Seong while the amount owed would be offset throughout the 3 years of the contract through project billing on the Nord Stream 2 pipe coating project.
• The group is also looking towards a stronger 2H17 with activities expected to be ramped up by then.

Risks

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

Forecasts

• Maintained.

Rating

HOLD (↔)

• Nord Stream 2 mega project is expected to be major contribution to group in the next 3 year. While orderbook has risen significantly, project execution risk remains as a concern as Nord Stream 2 project possess high complexity and demanding logistical requirements.

Valuation

• TP is maintained at RM0.87 pegged to 10x FY18 PER.

Source: Hong Leong Investment Bank Research - 31 May 2017