Wah  Seong  (WSC)  posted  a  1QFY13  net  loss  of  MYR1.6m  despite registering  an  operating  profit  of  MYR3.5m.  We  are  lowering  our  FY13 earnings forecast by 17.1% but leaving our FY14F numbers unchanged. We retain the view that the worst may be over for WSC and expect the company to see a stronger 2H13. Reaffirm BUY rating, with a higher FV of MYR2.50.

-  Below  expectations.  Wah  Seong  (WSC)  reported  a  net  loss  of MYR1.6m  (-129.7%  q-o-q,  -108.7%  y-o-y)  for  1QFY13,  which  was  way short of our and consensus expectations for a profit, despite registering an  operating  profit  of  MYR3.5m  (-79.3%  q-o-q,  -88.9%  y-o-y).  It  would have logged in earnings of MYR4.6m for the quarter had it not been for negative  goodwill  arising  from  the  acquisition  of  new  subsidiaries  worth MYR3.5m and a net foreign exchange loss of MYR2.6m.  

- Oil & gas division underperforms. Revenue from its oil & gas division plunged 51.2% y-o-y as its projects are largely anticipated to kick off only in  2H13.  Also,  the  lower  margins  from  existing  projects  from  last  year resulted  in  a  loss  before  tax  of  MYR15.1m  in  1QFY13,  compared  to  a profit before tax of MYR18.7m in 1QFY12.

-  Lowering FY13 forecast. Incorporating the weaker 1QFY13 results, we are  lowering  our  FY13F  earnings  by  17.1%  but  leaving  our  FY14F earnings unchanged.  

- 1H13 outlook to remain weak; look forward to 2H13. While its profits in 1QFY13 was weak, we believe that WSC may see better earnings in 2H13 once it recognizes income from its MYR611.3m project with Statoil. Works are expected to begin sometime in Aug or Sept 2013. The project could  enhance  its  earnings  visibility  for  18  months  and  support  our earnings projections for FY14.

- Maintain BUY. We advocate that investors accumulate WSC shares, as we expect the company to perform better in 2H13. We reaffirm our BUY call,  with  a  higher  FV  of  MYR2.50,  pegged  to  14x  on  the stock’s  FY14 EPS, which is at a discount to its seven-year average P/E of 19x. 

Source: RHB