• Wah Seong Corp’s (WSC) indirect subsidiary, PT. Wasco Engineering Indonesia (PTWEI), was awarded a contract by Siemens SAS valued at USD24.2m (equivalent to RM103.6m)
• The contract is for the design and build up of three Substations including Heating, Ventilation and Air Conditioning (HVAC) for a project in Kazakhstan
• The project is expected to commence in 3QFY17 and to be completed by 30 October 2018

• This will increase the orderbook for WSC to RM3.86b

• Revert to NEUTRAL (from Trading BUY) with unchanged TP of RM1.04

PTWEI awarded contract by Siemens SAS. The contract between WSC’s indirect subsidiary (87% effective interest), PTWEI and Siemens SAS is valued at USD24.2b (equivalent to RM103.6b, based on the exchange rate of RM4.2790). The contract is for the design and buildup of three Substations including Heating, Ventilation and Air Conditioning (HVAC) for a project in Kazakhstan.

Scope of work. The contract involves 3D modelling, structural analysis and design, blast wall design and design of all ancillary system such as lighting, safety, fire and gas detection. It also includes the provision of all necessary manufacturing drawings and full procurement of all items within its design scope and subsequently the responsibility for all aspects of the construction phase including installation and integration of all of the free issue equipment.

Timeline. The project is expected to commence in 3QFY17 and to be completed by 30 October 2018.

Increased orderbook. With the inclusion of this project, the group’s orderbook stands at RM3.86b where 94% of the jobs are from the O&G segment, 4% from the renewable energy segment and 1% from the industrial trading & services.

Impact on earnings. No changes made to earnings estimates as the project value is within our normal orderbook replenishment target for the group. Assuming a typical 10-15% pretax margin for such engineering works, this project could contribute approximately RM9- 13m to the group during the project duration.Revert to NEUTRAL. Since our reintroduction of Wah Seong on 19 May 2017 with a Trading Buy, the share price has increased by +9.0%, thus we are reverting our call on WSC to NEUTRAL (previously TRADING BUY) with an unchanged target price of RM1.04 per share. Our TP is based on EPS18 of 10.4sen pegged to PER18 of 10x.

Source: MIDF Research - 2 Aug 2017