1HFY21 missed expectations due to slower-than-expected order-book recognition, coupled with poor product mix. Nonetheless, this still represents a significant narrowing of losses YoY. Encouragingly, the group’s order-book managed to expand to ~RM1.4b (from ~RM1.2b last quarter), with further job wins from Qatar’s North Field Expansion project still anticipated. Upgrade to MP, with TP of RM0.65, given recent share price weakness, coupled with increased order-book replenishment’s visibility of late.

1HFY21 deemed below expectations. WASEONG reported 1HFY21 core net loss of RM9.8m (arrived after adjusting for gains on disposal, net forex, among other non-core items), missing expectations against our full-year earnings forecast of RM22.5m and consensus of RM33.9m, due to slower-than-expected order book recognition coupled with poor product mix. No dividends were announced, as expected.

Widened losses sequentially, albeit improved YoY. 2QFY21 core net loss of RM9.2m represents a widening of losses by >13x QoQ. This was mainly due to significantly poorer product mix from its oil and gas segment. However, YoY, the quarter saw narrowed losses by 73%, on the back of higher job flows across all segments. Cumulatively, 1HFY21 also managed to narrow core losses by 87% YoY, similarly from better job flows across all segments.

Expansion in order-book; job wins expected to come. Positively, the group’s order-book managed to expand during the quarter to RM1,366m from RM1,181m in the last quarter. Moving forward, management had also guided that the company has received its first letter-of-intent (LOI) for a pipe-coating job for the North Field Expansion project in Qatar, with an official contract award worth ~RM250m to come in the coming weeks (yet to be included in the current order-book figure). This would be the highest order-book value for the company ever since completion of the Nord Stream 2 job back in 2019. Additionally moving forward, there will an additional worth of pipe-coating jobs of ~USD300m from Qatar’s North Field Expansion that the company will be in active bids for the coming 2-3 years.

Upgrade to MARKET PERFORM. Post results, we introduce our loss forecast of RM4.5m for FY21, while lowering our FY22E profit forecast by 74%, to account for the slower-than-expected recovery in job flows coupled with the poorer product mix. As such, our TP is lowered to RM0.65 (from RM0.72 previously), pegged to unchanged valuations of 0.7x PBV on FY22E – broadly in-line with the stock’s mean valuations. However, given recent share price weakness, our call is upgraded to MP. This is also in line with the increased order-book’s visibility of late, following anticipated job wins from Qatar.

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

Source: Kenanga Research - 27 Aug 2021