WASEONG announced a contract award from Yinson for a FPSO topside module worth ~USD127m. We are positive on this award which would be one of its largest FPSO-related jobs secured to date, and would be the second largest job currently in their order book, which is estimated to be boosted to ~RM3.5b post contract win. Maintain OUTPERFORM, but with a higher TP of RM0.89 (from RM0.80 previously), as we raise our FY23F earnings by 12% to account for stronger job replenishment.

Secured topside module contract from YINSON. WASEONG announced that it has been awarded a contract by YINSON for the supply of certain FPSO topside modules valued at ~USD127m (or ~RM558m). Scope of works involves engineering, procurement and construction of FPSO topside modules, and is expected to be completed with 24 months.

Below is our take on the contract win:

1. Positive on the contract win. We were positively surprised on the contract win. This would be one of WASEONG’s largest FPSO-related jobs secured to-date, and would be the second largest single-job currently in their order book – just behind the EACOP project worth USD254m secured earlier in the year. Post contract win, this would bring the group’s current order book to a total of ~RM3.5b. This would also mean its order book will be the highest it has ever been since 2016 when they secured the Nord Stream 2 contract.

2. Financial impact. Assuming a rough ~10% net margin for the job (engineering and fabrication jobs typically falls within this range) implies an average net earnings impact per year of roughly ~RM27m.

Forecasts. Post contract award, we raised our FY23F earnings by 12% to account for the stronger job replenishment.

Maintain OUTPERFORM, with a higher TP of RM0.89 (from RM0.80 previously) - pegged to unchanged valuations of 9x PER – in line with the average valuation of its closest global peer Shawcor. There is no adjustment to TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Overall, we like the name for the following reasons: (i) being a beneficiary of the resurgence of global oil and gas development spending, (ii) commanding the second largest market share in the global pipe coating space and operating in a virtual duopoly, and (iii) certainty of its return to profitability given its current strong order book at a multi-year high.

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

Source: Kenanga Research - 8 Dec 2022