News

• Wah Seong Corporation Bhd announced that it has been awarded a contract by Basrah Gas Company for the design, packaging and sale of gas compressor packages and associated plant and site facilities.

• Valued at US$34.6m (c.RM135.2m), the contract will commence in March 2018 and will be completed by end of 2018.

Financial Impact

• While we are positive on the contract announcement, the positive earnings impact from the contracts has been included within our forecast.

• Its current order book stands at c.RM2.9bn after the award of this contract, of which RM2.6bn is from oil and gas segment. Nord Stream 2 takes up significant portion of its order book and cost management of the project is essential to the group’s profitability.

• Its tender book is at c.RM5.0bn, which can potentially help to sustain its revenue momentum beyond 2019 upon expiry of Nord Stream 2 project.

Forecast

• Maintained as the job win is within our order book replenishment assumption.

Risks

• Political risk,

• Execution risk.

Rating

HOLD ↔ TP: RM1.48 ↔

• Ramp up in Nord Stream 2 pipe coating contract has provided strong earnings visibility for the group in the next 2 years. However, we believe the recent surge in share price has priced in its positive earnings prospects.

Valuation

• Maintain HOLD with unchanged TP of RM1.48 pegged to unchanged 11x FY18 PER.

Source: Hong Leong Investment Bank Research - 19 Mar 2018