• Downgrade to NEUTRAL from Buy, with new MYR1.55 TP from MYR1.43, 1% downside. Wasco’s 1Q24 core earnings of MYR20.4m met expectations as we anticipate earnings to pick up in the coming quarters. Following a 56% YTD share price increase, we are downgrading our call. We believe Wasco is now fairly valued, trading at 11x FY25 P/E which is at its 5-year mean.

• Broadly met expectations. 1Q24 core earnings of MYR20.4m (+33% YoY, -19.6% QoQ), broadly met our and Street’s expectations at 19% and 21% of full-year earnings estimates. The softer quarter is attributed to reduced revenue from lower activity levels during the festive season. However, we believe Wasco will gain stronger earnings in the upcoming quarters from the progressive completion of Yinson Agogo and Qatar projects.

• Results review. 1Q24’s net profit of MYR20.4m after stripping one-off items, including impairments and a gain on disposal, declined 19.6% QoQ – corresponding to the lower recorded revenue of MYR643.9m (-19.6 QoQ). YoY, core earnings increased 33%, driven by the higher topline (+21.1% YoY), coupled with better margins and improved performances of its JVs and associates.

• Outlook. As of 1Q24, Wasco’s orderbook is valued at MYR3.2bn, of which MYR3bn (92%) is related to energy services, followed by bioenergy services (8%). Energy projects include East African Crude Oil Pipeline (EACOP) (c.45% completion) and Yinson Agogo (c.60% completion). In the quarter, the group also secured a third project, COMP1, from its client in Qatar and is part of the North Field Expansion Project. It is expected to be completed in the next six months. Moreover, Wasco bagged two biomass boiler projects in the quarter, and the group anticipates securing more in alignment with the National Energy Transition Roadmap (NETR). Its tenderbook stood at c.MYR7.2bn and the group is looking to sustain its orderbook value at around MYR3bn for the next few quarters. 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).

• D/G to NEUTRAL. We keep our earnings estimates unchanged, anticipating better quarters from the progressive completion of its Yinson Agogo and Qatar projects. We also expect its bioenergy segment to pick up following the soft 1Q24. Our TP is lifted to MYR1.55 as we roll forward our base year to FY25F, pegged to an unchanged 11x P/E (at its 5-year mean) and inclusive of a 4% ESG discount based on the ESG score of 2.8. We downgrade our call on Wasco, deeming the current valuation to be fair.

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

Source: RHB Research - 31 May 2024