1QFY20 plunged into losses, dragged by lack of new projects replenishments, the festive season and MCO during the quarter. Immediate outlook of the company seems bleak, with various project bids being delayed indefinitely, jeopardising its order-book replenishment. Current order-book of merely RM900m provides less than a year of revenue visibility. Maintain UP with lower TP of RM0.51.

Missed expectations. WASEONG posted 1QFY20 core loss of RM44m – completely missing expectations against our full-year earnings forecasts of RM68m and consensus’ of RM71m. The huge negative surprise was largely due to lack of projects replenishment amidst the low oil price environment, and the festive season and movement control order (MCO) in 1QFY20 partially hampering operations. No dividends were announced, as expected.

Plunging into losses. 1QFY20 plunged into losses (from core profit of RM19m in 1QFY19, and RM22m in 4QFY20), in tandem with the steep decline in revenue. All segments suffered poorer results, given the festive season and MCO partially hampering operations, while its oil and gas segment suffered from a lack of new projects to sustain profitability.

Bleak outlook. With its business value-chain largely exposed to green fields and capex spending, we find WASEONG to be among the worst hit casualties in this low oil price environment. While its tender-book still remains at RM4.5b, many of the company’s key project bids are seeing indefinite deferments or delays. Additionally, we gathered that it also had lost out on its bid for YINSON-related jobs – against market’s great expectation for such contract wins. Its current order-book of merely RM900m provides less than a year of revenue visibility.

Maintain UNDERPERFORM, given the lack of earnings visibility. Post results, we slashed our both FY20E/FY21E CNP by >100% to losses of RM73m/RM35m, to account for the lower project replenishment.

Our TP is also lowered to RM0.51 (from RM0.65 previously), as we switched our valuation methodology from PER to PBV, as the previous valuation methodology is no longer applicable given the complete lack of earnings visibility. Our new TP is pegged to a “floor” valuation of FY20E PBV of 0.5x, which is broadly in-line with -1.5SD from its 5-year mean (versus previous valuation of 7x PER).

Risks to our call include: (i) sudden surge in order-book replenishment, and (ii) better-than-expected margins.

Source: Kenanga Research - 21 May 2020