1QFY21 core net loss of RM0.7m is deemed to be broadly within expectations, as we anticipate stronger upcoming quarters, especially in 4QFY21. Overall, the quarter saw significantly narrowed losses YoY amidst a recovery trajectory, but deteriorated QoQ given slower job progressions. Moving forward, we believe new job wins to replenish its current order-book of RM1.2b is vital to sustain recovery. Downgrade to UP with unchanged TP of RM0.72.

1QFY21 deemed broadly within expectations. WASEONG reported a 1QFY21 PATAMI of RM8.6m. However, after adjusting for non-core items (e.g. RM8.1m net forex gain, among many others), we arrived at a 1QFY21 core net loss of RM0.7m. We deem this to be broadly within expectations against our full-year earnings forecast of RM22.5m and consensus of RM32.7m, as we anticipate stronger upcoming quarters, especially in 4QFY21, coinciding with the executions of potential new job wins. No dividends were announced, as expected.

Significantly narrowed losses YoY. YoY, core net loss narrowed significantly to RM0.7m from RM43.8m in 1QFY20. This is in-line with an overall industry-wide recovery, leading to higher executions and progress of orders in hand. However, QoQ, the results were poorer as the quarter plunged into losses from core net profit of RM17.2m in 4QFY20. This was in tandem with the revenue deterioration (-13.6%) amidst slower job progression, especially in its renewable energy and industrial trading segments.

Further job wins needed to sustain recovery. Currently, its order-book stands at RM1.2b (flattish QoQ). This gives a <1-year revenue visibility. As such, in order to continue sustaining the current recovery trajectory, we feel that the group have to successfully secure new projects from its current tender-book of ~RM4.5b. Currently, the group is actively tendering for jobs globally in key regions e.g. Africa and Australia. Meanwhile, the group is also tendering for the pipe coating job for Qatargas’ North Field Expansion project, with job execution expected in 4QFY21.

Downgrade to UNDERPERFORM (from MARKET PERFORM previously), with unchanged TP of RM0.72 at 0.7x PBV – in line with its mean valuation. No changes to our FY21-22E numbers post results.

Currently, the stock is trading at +1SD above its mean, and we believe the premium in valuations may have come ahead of fundamentals.

Risks to our call include: (i) surge in order-book replenishment, (ii) faster-than-expected jobs execution, and (iii) lower-than-expected project costs.

Source: Kenanga Research - 20 May 2021