INVESTMENT HIGHLIGHTS

• Wah Seong Corp’s reported loss of -RM10.0m in 4QFY18

• Earnings slumped on weaker revenue from O&G segment

• Current orderbook at RM1.1b

• 70% of orderbook from O&G segment

• Maintain NEUTRAL with a revised TP of RM1.00

Earnings slumped on weaker revenue from O&G. Wah Seong’s reported a 4QFY18 loss of -RM10.0m. The weaker earnings year-overyear is mainly due to lower activities in Malaysian operations, where 73% are from the O&G segment. Its normalised earnings came in at - RM4.4m after stripping out impairment on idle assets and one-off gain on sales and leaseback of land worth RM5.6m. This brings its FY18 earnings excluding minority interests to RM71.4m which is below ours and consensus’ full-year earnings expectation.

Oil & Gas. Segment revenue and earnings contracted by - 36.3%yoy and -74.9% respectively largely attributable to lower activities especially in the Asia Pacific region. The decrease in revenue and the share of impairment losses made by its joint ventures resulted in lower segment profit before taxation.

Renewable energy. Segment revenue recorded an increase by +16.9% due to higher revenue from the boiler and steam turbine business. However, its profit before tax was down by -40.9%yoy respectively mainly due to margin compression on revenue from the equipment fabrication and steam turbines.

Industrial Trading & Services. Segment revenue declined by - 24.7%yoy whilst earnings grew by >100%yoy respectively mainly due to lower sales of building materials and HDPE pipes. The segment profit was however contributed by higher revenue and better profit margins from the HDPE pipe manufacturing businesses.

Current orderbook at RM1.1b. The company’s current orderbook is at RM1.1b (vs RM1.59b in 3QFY18) due to significant amount of work being executed during the quarter. Of the RM1.1b, 70% or RM774.2b consists of O&G projects followed by RM283.3m for the Renewable Energy and RM54.4m for the Industrial Trading & Services segment.

Current tenderbook at RM5.9b. The company’s current tenderbook is at RM5.9b, unchanged from last quarter. Management guided that a more significant award of new contracts will potentially be in 2HFY19. The company added that it has tendered for projects in Europe, Africa and Australia.

Source: MIDF Research - 26 Feb 2019