• Initiate coverage with BUY, MYR1.43 TP based on 11x FY24F P/E (the5-year mean) and includes a 4% ESG discount, 42% upside. We likeWasco for its near-term earnings potential, led by a strong orderbook andtenderbook – these are on the back of strong FPSO demand and its gasprojects. In the longer run, we believe Wasco should be able to ride on theopportunities arising from the global energy transition wave, capitalising onits EPC and pipe-coating capabilities amidst sustainable growth within itsbioenergy arm.

• Solid orderbook and bright prospects. As of 3Q23, Wasco’s orderbookis valued at MYR3.6bn, of which MYR3.3bn (92%) is related to energyservices, followed by bioenergy services (8%). Its tenderbook is currentlyworth c.RM7bn, of which the bulk is accounted for by the oil and gas (O&G)unit (both pipe-coating and engineering works) – with jobs from the MiddleEast, Australia, Africa and Malaysia. Wasco targets to continue its strongreplenishment rate in 2H24. Hence, we believe it will be able to maintainits orderbook value at more than MYR3bn by end-2024.

• Opportunities in energy transition. Wasco has been securing moreenergy transition-related jobs, and its track record is essential for thecompany to clinch more relevant projects in the growing renewable energy(RE) and clean energy industries. Although energy transition-related jobsaccount for only 6% of its existing MYR3.3bn outstanding energy servicesorderbook, we expect this percentage to increase over the years. It alsosecured its maiden line pipe coatings contract for a carbon capture andstorage (CSS) project worth USD13m at the Port of Rotterdam forNederlandse Gasunie. According to management, there are approximately5,000km of pipelines for CCS projects planned between 2024 and 2027,translating to an estimated USD1bn worth of potential pipe-coating jobopportunities, including domestic works (ie Kasawari and Lang Lebah).

• Steady growth from the bioenergy arm, which contributed 10% of 9M23topline, is expected to provide a growing, yet stable and recurring earningsstream as there are more new turbine installations enlarging the operations& maintenance (O&M) customer base. Long-term growth will be furtheranchored by the National Energy Transition Roadmap (NETR) rollout lastyear. Malaysia targets to increase its bio-refinery capacity to 3.5bn litres,and raise biomass and biogas power generation capacity to 1.4GW by2050.

• Decent earnings growth. We expect Wasco to register 4-40% YoYearnings growth in FY23-25 – led by higher billings from existing contracts,with the possibility of better contributions from its JVs and associate firms,while higher O&G upstream activities should lead to better maintenancejobs and higher vessel demand. Downside risks: i) Decline in work ordersfrom clients, ii) softer oil prices limiting clients’ spending, and iii) higheroperating costs.

Source: RHB Securities Research - 18 Jan 2024