Journey to Wealth

Wah Seong - A Brighter Tomorrow

kiasutrader
Publish date: Wed, 27 Feb 2013, 10:01 AM

Wah Seong's FY12 net profit was  below  our  and  consensus  estimates,  accounting for  only  71.9%  of  our and  83.4%  of  consensus' full-year estimates.  Net  profit  dived 52.4%  y-o-y  despite  a  revenue  growth of  3.3%  y-o-y  due  to lower  projects  intake at its oil & gas segment and a lower-margin product mix. We lower our FY13 estimates by 5.4% and introduce our forecasts for FY14. We believe that the worst is over for Wah  Seong,  which  may  see  a  more  upbeat  2013.  Reiterate  BUY,  with  our  FV unchanged at RM2.13.
Lower  than  expected.  Wah Seong's FY12 net profit was  below  our  and  consensus  full-year  estimates  despite  growing  its  revenue  by a  marginal  3.3%  y-o-y.  This  was  due  to  a lower  intake  of  projects  in  its  oil  &  gas segment  and  a  product  mix  with  a  tighter  margin. The dip in revenue from its oil & gas segment (-8.8% y-o-y) was offset by a 37% and 6.5% y-o-y  growth  in  revenue  in  its  renewable  energy,  and  industrial  trading  and  services segments  respectively.  

Declares  second  interim  dividend.  To  reward  shareholders,  the  group  proposed  a second interim dividend of 2.5 sen, bringing the total dividends for FY12 to 5.5 sen. On top of  the  cash  dividend,  it  also  proposed  a  special  single-tier  dividend  by  distributing  its treasury shares on the basis of one treasury share for every 110 ordinary shares held.
Orderbook balloons from recent project win. The group's current orderbook is a healthy RM1.5bn,  comprising  RM1.1bn  worth  of  jobs  in  its  oil  &  gas  segment,  RM245m  in  its renewable energy segment and RM172m for the industrial trading and services segment. We  believe  that  the  group  could  potentially  secure  a  few  oil  &  gas  contracts  this  year, which  may  boost  its  orderbook  further  as  channel  checks  suggest  that  its  closest competitor, Brodero Shaw, is currently facing capacity constraints.  
Maintain  BUY.  We  retain  our  view  that  the  worst  is  over  for  Wah  Seong  and  project  an earnings growth of 112.3% y-o-y, buoyed by its recent contract win and contributions from its  26.9%  stake  in  Petra  Energy.  There  could  also  be  more  upside  to  our  earnings estimates  if  it  secures  more  contracts  this  year.  While  our  FY13  estimates  are  pared  by 5.4%, we retain our BUY call with the FV unchanged at RM2.13 as we peg the stock to its 12-months forward earnings. We advise investors to hold on to the stock.
 Source: OSK
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