Its first win for the year, a USD34.6m design and fabrication contract, showcased WASEONG’s ability to continuously secure jobs from the same client on top of its core pipe-coating business. However, we are maintaining our estimates as this is within our order-book assumption. All in, we maintain OP on the stock with same TP of RM1.80 pegged to 12x FY18E PER premising on more contract wins paving for replenishments post NS2.

First contract win for the year. Last Friday, WASEONG announced that it has been awarded a contract by Basrah Gas Company, a company incorporated in Iraq for the design, packaging and sale of gas compressor packages and associated plant and site facilities. The total contract value is approximately USD34.6m (equivalent to RM135.2m) and is expected to commence in March 2018 and to be completed by end 2018.

Enhance Middle East’s contribution. This is positive to WASEONG, showcasing its ability to win contract apart from its core business of providing pipe-coating services. The contract involves the provision of gas compressors and process equipment, which entails engineering, detail design, procurement and packaging of the equipment. This is not surprising as the company has previously supplied similar packages to the same customer in Iraq. Recall that the Middle East region contributed 3-5% to its FY15-16 revenue. We reckon the project margin should be lower than the typical pipe-coating services, at below 10%, anticipating RM13.5m EBIT per annum (c. 7.8% of our FY18 estimates).

Maintain FY18-19E earnings. Despite the new win enhancing its outstanding order-book by 4.8%, we are still keeping our FY18-19E estimates given that such win is within our expectations, accounting for 27% of the RM500m order-book replenishment assumption for FY18.

Reiterate OUTPERFORM. All in, we maintain OUTPERFORM call on the stock with an unchanged TP of RM1.80, pegging to 12x FY18E PER premising on: (i) brighter job prospect amidst stabilisation of oil prices above USD60/bbl, and (ii) stronger foothold in Europe. Such valuation is also in line with the O&G small cap valuation. Risks to our call include: (i) weaker project execution than expected, (ii) smaller-than-expected contract size, and (iii) lower than-expected margins.

Source: Kenanga Research - 19 Mar 2018