Wah Seong announced that it has won a MYR188.96m sub-contract to supply and deliver coated steel pipes for the Pengerang Deepwater Petroleum Terminal project, which is expected to be completed by3Q16. As the subcontract was within our estimate, we make no change to our earnings and maintain our BUY recommendation, with a TP of MYR1.40 (from MYR1.55, 15% upside) based on 9x FY16F P/E.

Salient details. Wah Seong, through its subsidiary PPI Industries and Petro-Pipe (Sabah), has been awarded a sub-contract valued at approximately MYR188.96m by Penta-Ocean Construction (1893 JP, NR), a Japanese specialist marine construction firm, for the supply and delivery of coated steel pipe piles for the Pengerang Deepwater Petroleum Terminal (PDPT) project. We understand that pipe production for the sub-contract began in May and the first shipment headed to Pengerang took place in June. The delivery is expected to be completed by 3Q16.

Orderbook of MYR1.4bn. With this contract, we estimate Wah Seong’s current orderbook at MYR1.4bn, and put its outstanding tenderbook value at MYR5bn. We believe that even in the current downturn, the outlook for pipe-coating tenders remains positive with several major projects coming up on the domestic front, like the Refinery and Petrochemicals Integrated Development (RAPID) as well as globally (for liquefied natural gas (LNG) liquefaction and regasification). We estimate its market share at 8%. Shawcor (SCL CN, NR), the global leader in specialised oil & gas pipe coating, commands a 25% market share.

BUY, with a FY16F TP of MYR1.40. As the sub-contract value is withinour orderbook renewal estimate for FY15, we keep our estimates at this juncture. We roll forward our valuation to FY16F but lower our TP to MYR1.40 (from MYR1.55) based on 9x (from 11x) FY16F P/E to reflect the uncertain market conditions going forward. This is at a 30% discount to Shawcor’s 13x FY16 P/E, and reflects Wah Seong’s lower market share. Even with the current bearish crude oil price market, we remain positive on its prospects, as gas and LNG-related infrastructure projectsaround the region are still on an upward trend.