Wah Seong's indirect subsidiaries secured a provision of line pipe thermal insulation job worth USD254.1m (equivalent to RM1.1bn) for the East African Crude Oil Pipeline (“EACOP”) Project, located between the town of Kabaale in Uganda and the port of Tanga in Tanzania. The work and services are expected to be completed within 30 months. While we are positive on this development, we maintain our earnings estimates at this juncture – pending the group’s 4QFY21 results and analyst briefing on Thursday (24th Feb 2022) as we will require more guidance to how this job win would impact the group’s earnings in FY22 and beyond. As of now, we maintain HOLD with an unchanged TP of RM0.80 based on 0.8x FY22 P/B, in line with its 5-year historical pre-pandemic mean P/B.

NEWSBREAK

Wah Seong's indirect subsidiaries secured a provision of line pipe thermal insulation job worth USD254.1m (equivalent to RM1.1bn) for the East African Crude Oil Pipeline (“EACOP”) Project, located between the town of Kabaale in Uganda and the port of Tanga in Tanzania. The work and services are expected to be completed within 30 months.

HLIB’s VIEW

Key highlights. We note a few key salient points, as below:

(1) From our findings, the EACOP is a 1,443km crude oil export pipeline that will transport Uganda's crude oil from Kabaale – Hoima in Uganda to the Chongoleani peninsula near Tanga port in Tanzania.

(2) This would be used for the commercialisation of the discovered petroleum resources in Uganda via the least cost route for transporting Uganda’s crude oil to the coast. The Hoima (Uganda) – Tanga (Tanzania) route was selected as more secure, at a cheaper cost and therefore, a lower tariff.

(3) The development of this pipeline is being led by the licensed upstream oil companies in Uganda, with participating interests by the Governments of Uganda and Tanzania.

(4) While we are positive on this development as this would boost Wah Seong’s orderbook by RM1.1bn (as at end-September 2021) to RM2.7bn, we maintain our earnings estimates – pending the group’s 4QFY21 results and analyst briefing on Thursday (24th Feb 2022) as we will require more guidance to how this job win would impact the group’s earnings in FY22 and beyond.

Forecast. Unchanged. We require more guidance and information before we decide to make drastic changes to our earnings estimates and recommendation.

Maintain HOLD, TP: RM0.80. We maintain our HOLD recommendation for Wah Seong with an unchanged TP of RM0.80 based on 0.8x FY22 P/B, in line with its 5- year historical pre-pandemic mean P/B.

Source: Hong Leong Investment Bank Research - 23 Feb 2022