FY21 continued to be in losses and missed expectations due to slower project progression. Nonetheless, the group saw a massive jump in its order-book to ~RM2.7b (from RM1.7b previously), after securing the EACOP job – its largest ever since Nord Stream 2. Given the improved visibility and improving outlook, we upgrade our call to MARKET PERFORM with a higher TP of RM0.79.

FY21 missed expectations. FY21 came in at a core net loss of RM23.7m (arrived after adjusting for various non-core items e.g. impairments, net forex, gains on disposals, among many others) – missing expectations against our loss estimate of RM18m and consensus of RM6.6m, due to slower project progression and order- book recognition. No dividends were announced, as expected.

Still in losses. YoY, FY21 managed to narrow its losses, thanks to greater project execution coupled with lowered project costs. For 4QFY21, the quarter registered core loss of RM1.8m – narrowing QoQ, similarly thanks to greater work progression. However, 4QFY21 plunged into losses YoY, despite the improved revenue, from poorer job margin mix coupled with higher project costs.

Massive jump in order-book. Earlier in the week, the group secured a midstream contract worth ~USD254.1m (or ~RM1.1b) for the provision of line pipe thermal insulation services for the East African Crude Oil Pipeline (EACOP). This is the group’s largest contract win post-Nord Stream 2 (recall that the group was awarded the Nord Stream 2 project back in 2016, estimated to be worth ~RM2.7b) – propelling its order- book to jump to a high of ~RM2.7b (from ~RM1.7b previously). We believe this gives the group the much-needed revenue and order-book visibility in which it has been lacking well over the past 1-2 years. Given the high oil prices and recovery of the oil market in general, WASEONG could benefit from an accelerated greenfield capex spending globally, with its tender-book currently standing at ~RM4b.

Upgrade to MARKET PERFORM. Despite the disappointing results, we raised our FY22E earnings by more than double, while introducing new RM23E numbers – in view of the group’s improving outlook given the boosted visibility in its order-book. Following so, our TP has also been raised to RM0.79 (from RM0.63 previously), pegged to a higher valuation of 0.9x PBV at 1SD above its mean valuation (versus previously of 0.7x PBV in-line with its mean).

Going forward, we believe project execution and continued job wins are crucial for the company to sustain its current order-book and revenue visibility. Additionally, long-term improvements in the group’s ESG could also be a key area of interests.

Risks to our call include: (i) project execution risks, (ii) slower-than- expected order-book replenishment, (iii) unexpected escalation in project costs, (iv) geopolitical and ESG factors surrounding projects that the group is involved in.

Source: Kenanga Research - 25 Feb 2022