• Maintain BUY and MYR1.43 TP, 18% upside. We retain our optimism on Wasco as its FY23 results came in line. We like the stock for its solid orderbook and tender prospects, which suggest strong near-term earnings potential. Furthermore, we expect better contributions from its JVs and associates, stemming from higher oil & gas (O&G) upstream activities.

• Within expectations. FY23 core earnings of MYR75.9m (+25% YoY) met our expectations at 101% but came in above consensus at 106%, on account of higher revenue and improved margins.

• Results review. 4Q23’s core net profit of MYR25.4m climbed 18.8% QoQ on a slightly higher revenue contribution of MYR801m (+2.2 QoQ) buoyed by improved margins. However, YoY saw a 17.7% decline on higher effective tax rate (ETR) and non-controlling interests. Post-stripping off one-off items, including multiple impairments, Wasco’s FY23 core earnings increased 24.5% YoY to MYR75.9m from MYR61m, thanks to greater contract billings from a higher number of projects executed. Further supporting the strong earnings are better margins and the improved performance of its JVs and associates. On the back of stronger operating cash flow, its net gearing continues to improve from 0.8x in 2022 to 0.5x in 2023.

• Outlook. As of 4Q23, Wasco’s orderbook is valued at MYR3.1bn (-13.9% QoQ as some orders are recognised), of which MYR2.9bn (91.6%) is related to energy services, followed by bioenergy services (8.4%). Its tenderbook remains at c.MYR7bn, as there has not been any significant awards. Nevertheless, the group secured two smaller contracts with a cumulative value of <MYR100m in 4Q23 – Bindu Project in Malaysia and Rosebank Surf Project in the UK. Wasco believes in sustaining its orderbook value at around MYR3bn for 2024 as the group sees a stronger replenishment rate in 2H24 – in time to cover two projects due for completion by end-2024 (Yinson Agogo and Qatar projects).

• We keep our FY24-25 earnings estimates unchanged and introduce FY26 forecasts with a replenishment assumption of MYR2bn. Our TP is kept at MYR1.43, pegged to 11x FY24F P/E (at its 5-year mean) and a 4% ESG discount based on the ESG score of 2.8.

• Key downside risks include decline in work orders from clients, softer oil prices limiting clients’ spending, and higher operating costs.

Source: RHB Research - 28 Feb 2024