FY19 results came in above expectations, helped by strong tax gains in 4QFY19 following the completion of the Nord Stream 2 project. Moving forward, the company aims to further strengthen its order-book (currently at RM929.6m), with FPSO-related jobs flow in 2020, and pipe-coating in 2021. Maintain MP with higher TP of RM1.40.

Above expectations. WASEONG posted FY19 core net profit of RM70.3m (arrived after stripping-off non-core items e.g. gains on disposals, impairments and forex), exceeding our/consensus expectations by 19%/13%, due to a huge tax gain in 4QFY19. We came to understand that the tax gains were due to tax write-back from its operations in Germany following the completion of the Nord Stream 2 project. Another positive surprise is that the company announced an interim dividend of 0.4 sen per share, on top of a share dividend on the basis of 1 treasury share for every 200 existing shares held. This is the first time the company had announced dividends since 2016.

Results helped by taxes. 4QFY19 recorded core net profit of RM21.7m – representing a turnaround from losses YoY, as well as a 42% jump QoQ. Overall, the strong results were lifted by the aforementioned tax gains. Operationally, the company posted weaker numbers throughout, in line with the drop in revenue, mainly dragged by the completion of Nord Stream 2 project earlier in 3QFY19 – which was one of the company’s main revenue contributors for the past several years. This was partially mitigated by a mix of higher margin pipe-coating jobs during the quarter. The same can be said for cumulative FY19, which saw its core net profit improving 11% YoY, helped by the aforementioned tax gains.

More contract replenishments coming soon. Despite recently completing its major Nord Stream 2 project, the group intends to continue growing its order-book (currently at RM929.6m) by securing more contract replenishments. We see this year as a strong year for the company to land major FPSO engineering/fabrication jobs, given the awards flow of FPSO contracts expected during the year, especially from Brazil, while 2021 should see an influx of pipe-coating jobs globally, especially in Australia, Africa and the Middle East.

Maintain MARKET PERFORM, with higher TP of RM1.40 (from RM1.30 previously), as we elevate our PER valuation by a notch to 15x (from 14x previously), given the company’s improving outlook. Postresults, we trimmed our FY20E CNP by 10%, after tweaking some order-book recognition assumptions, while simultaneously introducing FY21E numbers.

Risks to our call include: (i) sooner-than-expected order-book or tender-book replenishment, (ii) stronger-than-expected order book recognition, and (iii) better-than-expected margins.

Source: Kenanga Research - 19 Feb 2020