WASCO: Strong earnings ahead

Strong earnings anticipated in 4Q23 and FY24. WASCO is expected to report sequentially stronger earnings for 4Q23, and this positive momentum is anticipated to continue into FY24 as the group enters a steep recognition cycle for its robust RM3.6bn order book. Notably, we anticipate a significant earnings contribution from three major projects – Agogo FPSO project, EACOP project, Qatar's NSFP. The progress for these projects stood at 31%, 37%, and 27%, respectively, as of 3Q23.

Taking cue from the picking up upstream activities among the oil majors, we expect the contract flow for WASCO’s services to remain resilient, supported by the buoyant oil price. With a current tender book amounting to RM7bn, management has indicated that most of the tendered projects will be awarded in 2024, further strengthening the group's earnings. It's worth noting that historically, the group has achieved a success rate of around 30% in contract wins. In anticipation of robust recognition from ongoing projects and new contract awards, we project WASCO's FY24 earnings to achieve a commendable growth of 10.9%. We maintain a BUY recommendation with a target price of RM1.27.

Uptick bias.  Yesterday's breakout above RM1.09 signals a resumption of the uptrend for WASCO. The formation of higher highs, along with bullish indicators suggests the potential for WASCO to advance further toward RM1.22-1.26-1.34 region. Cut lost at RM1.04.

Collection range: RM1.08-1.10-1.15

Upside targets: RM1.22-1.26-1.34

Cut loss: RM1.04

Source: Hong Leong Investment Bank Research - 23 Jan 2024