Wah Seong reported 1Q21 core profit of RM2.4m (QoQ: -RM44.9m, YoY: -84%). The results came in within our and consensus’ expectations constituting 7% of our and consensus’ respective forecasts. The lower profit in 1Q21 was primarily attributable to seasonality factors. Total orderbook cover remains weak at 0.8x but there have been some notable improvements in operational cost. Hence, we maintain our HOLD call with an unchanged TP of RM0.80 based on 0.7x FY21 BVPS.

Within expectations. 1Q21 core profit of RM2.4m (QoQ: -RM44.9m, YoY: -84%) were within ours and consensus’ expectations despite constituting just 7% of our and consensus’ respective forecasts due to seasonality factors. In deriving our core earnings for 1Q21, we adjusted for EI’s amounting to a net amount of RM6.2m, mainly comprising of net unrealised foreign exchange gain of RM5.9m. No dividends were declared for the quarter, none expected for the year.

QoQ. Core profit was down -84% QoQ due to seasonality factors. The decline in core profit was mitigated by a -12% decrease in its operating costs.

YoY. Wah Seong recorded a core profit of RM2.4m as compared to a core net loss of - RM44.9m SPLY due to successful cost optimisation measures undertaken.

Outlook. Current order book stands at RM1.18bn as at 1Q21 (O&G: 79%, RE: 18%, ITS: 3%). Its expected contract award in from the Qatar North-field expansion gas project in 2H21 is only expected to amount to c.RM250-300m. However, Wah Seong has successfully optimised its operating cost and this can be seen by the consistent reduction YoY. Its orderbook replenishment has also been healthy, with outstanding orderbook holding steadily above RM1bn since 3Q20. We believe that Wah Seong would be able to maintain its orderbook backlog of about RM1.0-1.3bn in FY21 and FY22. Nevertheless, we do not foresee any material growth its orderbook in the near future due to its low orderbook coverage ratio of 0.8x.

Forecast. No Changes.

Maintain HOLD, TP: RM0.80. We maintain our HOLD rating with an unchanged TP of RM0.80 based on 0.7x FY21 BVPS. We believe that the prospects for Wah Seong are turning for the better 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 c.RM1.18bn is not sufficient for us to warrant a BUY call on the stock and we do not foresee any material increases in orderbook in the near future.

Source: Hong Leong Investment Bank Research - 20 May 2021