Wah Seong reported 4Q22 core PATAMI of RM30.9m (+60% QoQ, YoY: -RM78.6m), bringing FY22 core net profit to RM68.3m (FY21: RM96.9m). We are convinced that FY23-24f will be strong bumper years for Wah Seong from: (i) the EACOP line pipe thermal insulation job win worth about RM1.1bn (currently at about 25% completion), which was the group’s single largest job win since Nord Stream 2 back in 2016; and (ii) RM558m for the EPC of the Agogo FPSO for Yinson. With that, we maintain our BUY call on Wah Seong with an unchanged TP of RM0.96 – based on 10x FY23f EPS, which is at a slight premium to its 5-year average one-year forward multiple of 9.5x to reflect the positive job win prospects and earnings growth over the next 12-18 months.

Above expectations. Wah Seong reported a 4Q22 core PATAMI of RM30.9m (+60% QoQ, YoY: -RM78.6m), bringing FY22 core net profit to RM68.3m (FY21: -RM96.9m), predominantly adjusted for: (i) RM7.2m impairment loss on receivables; (ii) RM9.0m impairment loss on investment in a JV; (iii) RM60.9m provision for impairment; (iv) RM2.5m allowance on slow moving and obsolete inventories; (v) RM0.9m write-off on PPE; (vi) RM0.5m write-off on inventories; (vii) RM0.1m write-off on receivables; (viii) RM0.5m loss on disposal of PPE; (ix) RM5.2m gain on disposal of assets held for sale; (x) RM2.1m gain on disposal of an associate. The results came in above expectations, accounting for 128%/133% of our/consensus full-year forecasts respectively. Key variance against our forecast was due to better-than-expected recognition from its Energy Solutions segment (possibly a ramp-up in construction revenue for its RM1.1bn EACOP project).

Dividend. None as Expected.

QoQ. Core net profit increased 60% QoQ due to the improved showing from the group’s Energy Solutions division, which we believe stems from a ramp-up in construction revenue for its RM1.1bn EACOP project and the coating plant project in Qatar.

YoY/YTD. Wah Seong turned into the black for its YoY/YTD comparisons due to: (i) an improved showing from the group’s Energy Solutions division – which we believe stems from a ramp-up in construction revenue for its RM1.1bn EACOP project and the coating plant project in Qatar; and (ii) stronger performance from its renewable energy division – where the group had a higher number of projects executed and increased equipment/after-sales services throughout both 4Q22 and FY22.

Outlook. Current order book stands at RM3.4bn as at end-4Q22 (Energy Solutions: 87%; Renewable Energy: 12%; ITS: 1%) while the tenderbook stands at around RM4.0bn. From our ground checks, we also note that Wah Seong has recently secured a new project in Qatar and we estimate the project size to range from USD80-95m for a tenure of about 18-24 months. We are convinced that FY23-24f will be strong bumper years for Wah Seong from: (i) the EACOP line pipe thermal insulation job win worth about RM1.1bn (currently at c.25% completion), which was the group’s single largest job win since Nord Stream 2 back in 2016; and (ii) RM558m for the EPC of the Agogo FPSO for Yinson.

Forecast. Unchanged.

Maintain BUY, unchanged TP of RM0.96. We maintain our BUY call on Wah Seong with an unchanged TP of RM0.96 – based on 10x FY23f EPS, which is at a slight premium to its 5-year average one-year forward multiple of 9.5x to reflect the positive job win prospects and earnings growth over the next 12-18 months.

Source: Hong Leong Investment Bank Research - 24 Feb 2023