Wah Seong posted 2Q22 core net profit of RM13.3m (+177% QoQ, YoY: -RM7.9m), bringing 1H22 core earnings to RM18.1m (1H21: -RM5.5m). We deem the results to be within expectations at 31% and 35% of ours and consensus full-year forecasts as we expect subsequent quarters to be better for Wah Seong with further revenue and profit recognition from its EACOP and Qatar projects. We believe that FY22-23f would be bumper years for Wah Seong with the EACOP job win (worth RM1.1bn). With that, we maintain BUY on Wah Seong with an unchanged TP of RM1.17/share based on 12x FY23f EPS – which is at a slight premium to 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.

Deemed in-line. Wah Seong posted 2Q22 core net profit of RM13.3m (+177% QoQ, YoY: -RM7.9m), bringing 1H22 core earnings to RM18.1m (1H21: -RM5.5m) – adjusted predominantly for: (i) RM0.3m of reversal of impairment loss on receivables; (ii) RM2.8m impairment loss in JV; (iii) RM2.1m gain on disposal of an associate; and (iv) RM5.2m gain on disposal of assets held for sale. We deem the results to be within expectations at 31% and 35% of ours and consensus full-year forecasts as we expect subsequent quarters to be better for Wah Seong with further revenue and profit recognition from its EACOP and Qatar projects.

Dividends. No Dividends Declared.

QoQ. Core net profit spiked up almost 3x QoQ mainly due to improved performance from its oil & gas segment, which we believe stems from its coating plant project in Qatar and the recently won RM1.1bn EACOP project.

YoY. Wah Seong turned into the black to RM13.3m (vs losses of -RM7.9m in 2Q21) and this was mainly due to better revenue and profit margin from its oil & gas segment, which we believe stems from its coating plant project in Qatar and the recently won RM1.1bn EACOP project.

YTD. Wah Seong recorded a core net profit of RM18.1m in 1H22 (vs. losses of -RM5.5m in 1H21) due to similar reasons mentioned above.

Outlook. Current order book stands at RM3.0bn as at end-2Q22 (O&G: 86%, RE: 13%, ITS: 1%) while tenderbook stands at c.RM4.0bn (mostly in Middle East and Australia). We are convinced that FY22-23f will be strong bumper years for Wah Seong with the recent line pipe thermal insulation EACOP job win worth about RM1.1bn – the group’s single largest job win since Nord Stream 2 back in 2016. We are excited about the group’s near to mid-term prospects.

Forecast. We make no changes to our FY22-23f earnings estimates.

Maintain BUY, TP: RM1.17. We maintain our BUY call on Wah Seong with an unchanged TP of RM1.17/share (based on 12x FY23f EPS) which is at a slight premium to 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 - 26 Aug 2022