WASCO is selling its shop offices in Kuala Lumpur for RM36m cash. The disposal will result in about RM32m gains, translating to 4sen/share, and the proceeds will reduce WASCO's net gearing to 0.45x from 0.56x. We maintain our forecasts, TP of RM1.48 and OUTRPERFORM call.

WASCO is selling to private company SQFT Estate Sdn. Bhd eleven shop offices with a total built-up area of 33,068 sq ft in Kuala Lumpur for RM36m.

At RM1,088 per sq ft (psf), we believe WASCO is getting a reasonably good deal here based on asking prices of slightly above RM900 psf for similar properties in the surrounding areas. We believe the premium may be justified by virtue of the 17-year old properties being tenanted with recurring incomes.

The disposal will result in about RM32m gains, translating to 4sen/share, and the proceeds will reduce WASCO's net gearing to 0.45x from 0.56x.

Forecasts. Maintained as our forecasts exclude one-off items.

Valuations. We also maintain our TP at RM1.48 pegged to FY25F 10x PER, consistent with the average of upstream oil & gas service providers of similar size. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We like WASCO due to: (i) it being a beneficiary of the robust tender pipeline for global pipe coating and EPC projects, (ii) its thrust into contracting work for sustainable projects (e.g. solar farm in Taiwan, hydrogen and refuelling station in Queensland, and Ineos New Energy Plant in Scotland), and (iii) it is the second largest market player in the global pipe coating duopoly. Maintain OUTPERFORM.

Risks to our call include: (i) delays and cost overruns from poor project execution, (ii) slow order book replenishment, and (iii) surge in opex due to an inflationary cost environment.

Source: Kenanga Research - 1 Mar 2024