Wah Seong’s Singaporean subsidiary (WSEF) has been awarded a pipeline contract worth RM147.8m from Fluor Limited UK. The contract is estimated to be completed within 18 months. We believe that this could be a leading indicator towards the willingness of oil majors to award more pipeline related jobs to the market. Hence, we upgrade Wah Seong from a SELL to a HOLD with a TP of RM0.80 (from RM0.60) based on 0.7x (from 0.5x) FY21 BVPS. Nevertheless, we believe that the company’s current orderbook backlog of circa RM1.3bn is not enough for us to warrant a BUY call on the stock. Its current group orderbook cover stands at 0.9x.

NEWSBREAK

Wah Seong’s Singaporean subsidiary (WSEF) has secured a contract from Fluor Limited UK. The scope of work of the contract involves complete fabrication and assembly of pipe rack, process, and structural modules and skid units (modules) and testing, pre-commissioning, turnover and load out services for the modules. The contract is estimated to be completed within 18 months from the date of announcement (17 March 2021). The contract is valued at RM147.8m (USD35.9m).

HLIB’s VIEW

Contract win positive for Wah Seong. We believe that the aforementioned contract win is positive for Wah Seong and this might be a potential leading indicator towards the willingness of O&G majors to award more pipeline related contracts to the market. The aforementioned contract win would bring Wah Seong’s orderbook to circa RM1.3bn.

Outlook. While we view the contract win positively, we believe that the company would need to secure more contracts of material value to sustain its post-NS2 recovery as the estimated contract value from the Qatar North-field expansion gas project is only expected to amount to circa RM300-350m.

Forecast. We increased our earnings forecast for FY21-22f by 26.0/23.4% to account for the aforementioned contract win.

Upgrade to HOLD, TP: RM0.80. We upgrade our Sell call to HOLD with a higher TP of RM0.80 (from RM0.60) based on 0.7x (from 0.5x) FY21 BVPS as we turn more positive on Wah Seong due to its (i) Fluor UK contract win; (ii) improved operational efficiency from cost saving initiatives; and (iii) improved prospects on pipe coating contract wins from higher O&G prices. Nevertheless, we believe that its current orderbook backlog of circa RM1.3bn is not sufficient for us to warrant a BUY call on the stock as Wah Seong’s share price has already increased by more than 100% from its trough in November 2020.

Source: Hong Leong Investment Bank Research - 24 Mar 2021