Despite headline losses, WASEONG actually managed to stage a turnaround in 3QFY20 on the core-level (adjusting for impairments, provisions and deferred tax), beating expectations. Its order-book managed to grow 27% QoQ to RM1.1b, while its tender-book stands at ~RM4b, which includes a pipe coating job from Qatargas’ North Field Expansion, which the group is mildly confident of securing by 1HFY21. Upgrade to MP, with unchanged TP of RM0.43, given the increased possibility of earnings recovery.

9MFY20 deemed above expectations. 9MFY20 recorded core net loss of RM68.8m (arrived after stripping-off non-core items e.g. impairments, provisions, deferred taxes, gains on disposals and net forex), deemed to have exceeded expectations against our full-year loss forecasts of RM129m and consensus of RM112.8m. This is because its 3QFY20 results managed to turn in an unexpected core net profit of RM9.3m (from core net loss of RM34.3m in the previous quarter), on recovery of jobs in its oil and gas segment. No dividends were announced, as expected.

Recovery in 3QFY20. As aforementioned, 3QFY20 staged a turnaround QoQ, as revenue managed a healthy recovery of 87%, mainly on the back of increased activities in its oil and gas segment. However, on a YoY basis, core earnings were still down by 39%, given slower jobs across all segments. Cumulatively, YTD-9MFY20 plunged into losses (from core profit of RM47.6m in 9MFY19), similarly due to slower job flows across all segments.

Some hope for the future? Another positive takeaway from the quarter is that the group’s order-book has managed to increase to RM1,108.8m, from RM870.2m in the previous quarter. This arose from some newer oil and gas job wins in Africa and Australia. Meanwhile, the group also has a tender-book of ~RM4b. More notably, the tender-book includes a pipe coating job for Qatargas’ North Field Expansion project, which the group is mildly confident of securing. We guesstimate the project could be worth up to ~USD200-300m for WASEONG, with the contract likely to be awarded in 1HFY21. Should this materialise, job execution is expected to commence in 2HFY21, which may help bolster its FY21 outlook despite the current difficult market conditions.

Upgrade to MARKET PERFORM, with unchanged TP of RM0.43, pegged to 0.5x FY21E PBV at -1.5SD from its mean. Post-results, we narrowed our FY20E loss assumptions by 54%, in anticipation of another similarly profitable quarter in 4QFY20. Meanwhile, we reversed our FY21E earnings to a profit forecast of RM16m (from loss of RM110m previously), in anticipation of the continued recovery of its oil and gas segment. Our assumptions imply a further ~RM800m orderbook replenishment in FY21. Our call is also subsequently upgraded to MARKET PERFORM, given the possibility of a recovery, coupled with recent share price weakness.

Risks to our call include: (i) failure of order-book replenishment, (ii) slower-than-expected jobs execution, (iii) costs overrun, and (iv) further impairments or deterioration to its book value.

Source: Kenanga Research - 25 Nov 2020