Profile: WASEONG is a pipe-coating and fabrication specialist with complementary businesses in renewable energy (RE) and industrial trading & services (ITS), serving the onshore and offshore companies within the O&G industry in Malaysia and overseas.

Risk-reward profile is skewed towards further upside. After a 1Q22 turnaround, we expect subsequent quarters to be better for WASEONG with further revenue and profit recognition from its East African Crude Oil Pipeline (EACOP) projects worth about RM1.1bn (for a contract duration of 30 months) and Qatar projects. Value has resurfaced after falling 13% from a 52-week high of RM0.825 to RM0.715 last Friday (+63% upside to HLIB TP of RM1.17), aided by a strong FY22-24E EPS CAGR of 18% and cheap valuation of 6.8x FY22E (-46% vs 5Y avg 12.7x). Overall, we expect WASEONG’s future earnings to remain buoyant, driven by its robust order book at RM3.0bn as at end-1Q22 (O&G: 85%, RE: 14%, ITS: 1%) while tenderbook stands at c.RM4.0bn (mostly in Middle East and Australia).

Strong job outlook amidst Russia-Ukraine conflict. We reckon there is strong pipe coating jobs outlook amidst the Russia-Ukraine conflict and elevated gas prices over the next 12-18 months. As Europe is looking for gas supply alternatives outside of Russia (to reduce reliance on a major single energy source), the region will have to dish out capex for crude oil / gas export pipelines from other nations to Europe. Given that WASEONG is one of the global duopoly (alongside Shawcor) in the pipe coating business, the group stands to be a major beneficiary of the strong pipe-coating job prospects.

Building base near RM0.68-0.70. Following the 13% fall, WASEONG is grossly oversold and downside risk is limited with strong supports near RM0.68 -0.70. As technical indicators are on the mend, the stock is poised for a technical rebound soon. A successful breakout above RM0.745 (20D MA) will spur the prices toward RM0.82 (YTD high) and our LT objective at RM0.91 (Jan 2021 high). Cut loss at RM0.65.

Source: Hong Leong Investment Bank Research - 30 May 2022