Period

4Q15/FY15

Actual vs. Expectations

FY15 results came below 27% and 48% of our in-house and consensus estimates with a core net profit of RM22.9m.

The negative variance was largely due to weaker-thanexpected revenue from the oil and gas division and higher-than-expected operating expenses amid weak crude oil prices environment.

Dividends

A NDPS of 1.0 sen was declared, bringing its total NDPS in FY15 to 3.0 sen, which was higher than our estimates of 2.0 sen but lower than the NDPS of 5.0 sen in FY14.

Key Results Highlights

WASEONG managed to record a CNP of RM3.8m from a net loss of RM9.0m in the preceding quarter due to stronger contribution from Renewable Energy and Industrial Trading & Services divisions but was offset by weaker performance from the Oil & Gas division.

YoY, the core net loss slumped 91.7% from RM45.2m in 4Q14 as a result of slowdown in the Oil & Gas division. Recall that last year, WASEONG was busy with its pipecoating job from Statoil which was completed early of the year.

Similarly, FY15 core net profit plunged 83.9% from RM142.1m mainly due to the same reasons mentioned above. The situation was offset by the narrowing loss to RM17.0m from RM20.3m in the plantation segment.

Outlook

As at 4Q15, its orderbook fell to RM894.0m from RM974.0m in the previous quarter owing to lower contract replenishment from the oil and gas division.

Going forward, pipe coating business will continue to be its main earning driver. Contributions from both the recent JV with Evraz and Weslpun to penetrate the Indian and North American markets are anticipated to kick in earliest by 3Q16.

However, we believe that margins will remain weak owing to lack of insulation coating jobs, which typically fetch higher margins as a result of slowdown in deepwater development projects.

Change to Forecasts

We cut our earnings forecast by 75.9% for FY16 to RM21.2m after factoring slower revenue recognition and lower orderbook replenishment from oil and gas division.

FY17E earnings of RM39.2m is introduced assuming an orderbook replenishment of RM400m from the Oil & Gas division.

Rating

Maintain UNDERPERFORM

Valuation

Our TP is lowered to RM0.73 from RM0.80 after cutting FY16E earnings and pegging to lower CY16 PBV of RM0.45x from 0.5x to factor weaker earnings outlook.

The assigned target PBV is also consistent with its - 2.0SD below to its 5-year average Fwd PBV.

Risks to Our Call

(i) Securing more contracts than expected, and (ii) higher-than-expected margin.

Source: Kenanga Research - 1 Mar 2016