Wah Seong; Hold
Price Target: RM1.75; WSC MK

WSC announced that its subsidiary, PMT Industries Sdn Bhd has entered into an agreement with Shinko Ind. Ltd. to form a JV (49%:PMT; 51%: Shinko) to be involved in the business of manufacturing turbines and any other related ancillary equipment, parts and spares.

Shinko is one of the global leaders in steam turbines with established reputation for quality, reliability and performance while PMT is mainly an engineering outfit specialising in manufacturing & supply of palm oil mill processing machineries, spart parts and provides services & repair of equipment. Both parties already have an existing business relationship as PMT carries Shinko’s power generation equipment as part of its product offerings.

We are neutral on the JV as it is unlikely to contribute meaningfully to the group in the near term. Nevertheless, the tie-up will continue to strengthen WSC’s foothold in the renewable energy business where its operating profit grew 45% y-o-y in FY12.

WSC’s plantation venture in Congo will remain a concern because WSC does not have a track record in plantations and planting progress may be hampered by local issues. We do not see any visible near-term catalyst for WSC. Therefore, we maintain our earnings forecast and HOLD rating with RM1.75 TP (based on 15x FY13 EPS).

Source: HwangDBS Research - 23 Apr 2013