INVESTMENT HIGHLIGHTS

• Wah Seong Corp’s (WSC) 4QFY17 profit before tax increased by +45.3% q-o-q to RM61.9m

• Cumulatively, FY17 normalised earnings amounted to RM88.9m

• The positive earnings was supported by the improved activities from the oil and gas segment

• Total current orderbook stands at RM2.8b

• Maintain NEUTRAL with revised TP of RM1.58

4QFY17 profit before tax increased by +45.3% quarter-onquarter. In 4QFY17, WSC’s earnings continues to improve, increasing by +45.3%qoq to RM61.9m. Cumulatively, FY17 normalised earnings (excluding exceptional items) turned positive to RM88.9m compared to FY16’s loss of -RM37.1m. This exceeded both ours and consensus’ full year earnings expectations at +115%.

Oil & Gas Segment. 4QFY17 O&G segment recorded a profit before tax of RM64.0m compared to the loss before tax in 4QFY16 of RM111.5m. This improved performance was attributable to the increase in activity level and its healthy orderbook which mostly consists of the Nord Stream 2 (NS2) project.

Renewable Energy Segment. The renewable energy segment’s profit before tax for 4QFY17 also increased by +9.0%yoy to RM12.1m. The increase in earnings was attributable to the higher revenue received from equipment fabrication and its boiler business.

Industrial Trading & Services Segment. The segment recorded 4QFY17 profit before tax of RM0.4m compared to a loss of –RM16.2m in 4QFY16. The improvement in earnings is attributable to the higher sales from the trading of building materials especially cement and steel bars, and the revenue from the sale and servicing of construction equipment and power generation systems.

Orderbook. The company’s current orderbook stands at RM2.8b where 89% of the jobs are from the O&G segment, 9% from the renewable energy segment and 2% from the industrial trading & services (ITS). The bulk of its orderbook from the O&G segment consists of its NS2 project which takes up approximately 72%. As for the group’s tenderbook, it currently stands at approximately RM5.0b, with the O&G segment consisting of approximately RM4.2b.

Impact on earnings. We revise our FY18 earnings forecasts upwards to RM115.6m. This is to account for: (i) higher topline contribution from all the three core business segments and, ii) cost savings from the plantation segment.

Maintain NEUTRAL. We maintain our NEUTRAL call on Wah Seong with a revised TP of RM1.58 per share, after rolling forward the earnings reference year to FY19. Our TP is based on a EPS19 of 15.8sen pegged to an unchanged forward PER19 of 10x.

Source: MIDF Research - 27 Feb 2018