Period  4Q14/FY14

Actual vs. Expectations  Wah Seong Corporation (WASEONG)’s 4Q14 net profit of RM34.6m brought cumulative FY14 net profit to RM125.6m. This is above our (RM116.0m), and consensus (RM113.8m), full-year estimates, at 108.3% and 110.3%, respectively.

 We suspect the 4Q14 net profit trumped our forecast on higher-than-expected margins and progress execution of the pipe-coating contracts.

Dividends  2.5 sen single-tier cash dividend declared brought cumulative FY14 DPS to 5.0 sen. Within our expectations.

Key Results Highlights  In 4Q14, its core net profit registered QoQ growth of 14.0% mainly due to strong performances from both O&G and Renewable Energy divisions on higher work orders performed.

 On YoY basis, 4Q14/FY14 CNP surged 67.6%/288.5% on the back of significantly larger revenue contribution from the O & G division. Overall EBIT margin also improved 420 basis points as more higher-margin O & G jobs were executed in the quarter compared to the previous year.

Outlook  The main earnings driver for WASEONG is its orderbook which is largely dominated by pipe-coating contracts at RM1.2b (from RM1.4b in Sept-14).

 Tender book is guided to be RM5.0b with almost all being Oil and Gas related projects (>90.0%).

 However, contract awards could be delayed as terms of the contracts could be reviewed in lieu of weak crude oil price.

Change to Forecasts  Post housekeeping, our FY15E CNP is adjusted to RM130.2m from RM132.0m.

 We introduce FY16E CNP of RM130.6m premised on: (i) RM500.0m orderbook replenishment for pipe coating division, and (ii) flattish growth for other divisions as it could be more challenging ahead with delays in contract award expected.

Rating Maintain MARKET PERFORM.

Valuation  TP is tweaked slightly to RM1.52 from RM1.55 previously due to slight changes in FY15E CNP.

 It is pegged to unchanged 9.0x CY15 forward PER which is consistent to the downcycle valuation range of its small-mid cap peers (7-10x).

Risks to Our Call  (i) Securing less contracts and (ii) lower-than-expected margins. 

Source: Kenanga