Wah Seong announced a couple of land transaction developments, namely: (i) the disposal of a leasehold industrial land in George Town, Pulau Pinang measuring 35.2k sq meters (or 379.0k sq ft) with a double storey office building erected thereon for a total consideration of RM26.5m; and (ii) the acquisition of MMA Offshore Holdings Pte. Ltd. and MMA Offshore Investments Pte. Ltd. – which are investment holding companies and its only notable assets are three (3) plots of lands in Batam, Indonesia with a total land size of 181.0k sq meters (or 1,948.7k sq ft) for a total consideration of RM65.4m. We are neutral on these developments. Maintain BUY on Wah Seong with an unchanged TP of RM1.17/share based on 12x FY23f EPS – which is at a slight premium of its 5- year average P/E of 9.5x to reflect the positive job win prospects and earnings turnaround over the next 12-18 months.

NEWSBREAK

Wah Seong announced a couple of land transaction developments, namely: (i) the disposal of a leasehold industrial land in George Town, Pulau Pinang measuring 35.2k sq meters (or 379.0k sq ft) with a double storey office building erected thereon for a total consideration of RM26.5m; and (ii) the acquisition of MMA Offshore Holdings Pte. Ltd. and MMA Offshore Investments Pte. Ltd. – which are investment holding companies and its only notable assets are three (3) plots of lands in Batam, Indonesia with a total land size of 181.0k sq meters (or 1,948.7k sq ft) for a total consideration of RM65.4m.

HLIB’s VIEW

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

(1) Currently, the premises at the Batam Yard is occupied by PT Wasco Engineering Indonesia, an indirect subsidiary of Wah Seong. Based on a short conversation with Wah Seong’s management regarding the subject matter, we gather that the lease expense amounts to c.RM2.0m annually.

(2) Combining both transactions, this development will increase Wah Seong’s net debt (including time deposits) and gearing of RM512.4m and 0.87x to RM551.3m and 0.94x. The group has guided that it will not be doing any equity fund raising in the near term.

(3) Overall, we are neutral on these developments. While the group’s balance sheet deteriorated slightly, we note that there will be some earnings enhancement from the lease expense savings of RM2.0m annually. To be conservative, we will not be making any changes to our FY22-23f earnings forecasts.

Outlook. We are convinced that the group will successfully turn into the black in FY22 with the recent line pipe thermal insulation EACOP job worth about RM1.1bn – which is the group’s single largest job win since Nord Stream 2 back in 2016. With this job win, Wah Seong’s orderbook more than doubled to RM2.7bn.

Forecast. No Changes to Our Earnings Estimates.

Maintain BUY, TP: RM1.17. Maintain BUY with unchanged TP of RM1.17/share based on 12x FY23f EPS – which is at a slight premium of its 5-year average P/E of 9.5x to reflect the positive job win prospects and earnings turnaround over the next 12-18 months.

Source: Hong Leong Investment Bank Research - 5 May 2022