• Wah Seong Corp’s (WSC) 2QFY17 earnings swung into the black from a year earlier to RM9.6m

• The increase in earnings was supported by the improved earnings from the oil and gas segment

• Total current orderbook stands at RM3.73b

• Maintain NEUTRAL with unchanged TP of RM1.04

2QFY17 earnings swung into the black. WSC’s earnings continue to improve swinging into the black and increasing by over +100%qoq to RM9.6m. Subsequently, its 1HFY17 earnings turned positive to RM12.8m compared to 1HFY16. The increase in earnings is attributable to the positive earnings from its oil and gas segment. Cumulative 6MFY17 earnings is still within our and consensus full year estimates as we are expecting earnings to be tail-heavy in FY17.

Oil & Gas Segment. 2QFY17 O&G segment recorded a profit before tax of RM12.9m compared to the loss before tax in 2QFY16 of – RM12.1m. This improved performance is attributable to the increase in activity level and its healthy orderbook which mostly consists of the NordStream 2 project.

Renewable Energy Segment. The profit before tax for 2QFY16 decreased by -38.6%yoy due to the lower revenue recorded for the quarter. The lower revenue was attributable to the lower contracts secured for process equipment and Kernel Crushing Press.

Industrial Trading & Services Segment. Segment revenue and earnings before tax decreased by -22.0%yoy and >-100% respectively. The lower revenue was due to the lower sales of building materials and spiral steel pipes. Meanwhile, the dip in earnings before tax was due to the operational losses from its overseas subsidiaries and residual costs associated with the closure of the pipe manufacturing business.

Orderbook. The company’s current orderbook stands at RM3.73b where 93% of the jobs are from the O&G segment, 6% from the renewable energy segment and 1% from the industrial trading & services. The company’s tenderbook stands at approximately RM5.0b, with the O&G segment consisting of approximately RM4.0b.

Impact on earnings. No change to our earnings estimates at this juncture.

Updates on Nord Stream 2. The management updated that the Nordstream 2 project is progressing well. Its Finnish plant, Kotka has been on double shifts since end-May 2017, although it had to stop operations for three weeks in June 2017 for summer holidays. As for its German plant, Mukran, it has commenced commercial production endJuly and will most probably be on double shift by end-August 2017. The Group expects both Kotka and Mukran plants to be on double shifts in September 2017. Meanwhile, the Group also expressed that they are not facing any delays in production stemmed from the late environmental permit approvals from Russia and Denmark.

Maintain NEUTRAL. We maintain our NEUTRAL stance on WSC with an unchanged TP of RM1.04 per share. Our TP is based on EPS18 of 10.4sen pegged to PER18 of 10x.

Source: MIDF Research - 29 Aug 2017