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Upgrade to BUY from Neutral, new MYR1.86 TP from MYR1.55, 66% upside. 1H24 core earnings exceeded expectations, driven by stronger margins and a lower effective tax rate. The 3-month share price decline has made Wasco more appealing – it is now trading at an attractive 6.6x FY25F P/E. Orderbook growth of 15% QoQ to MYR3.7bn further supports the group’s positive outlook.
Beat estimates. 1H24 core earnings of MYR62.2m (2.1x YoY), came above our and Street’s expectations at 59% and 55% of full-year earnings. This was attributed to lower than-expected tax expenses and better margins.
Results review. 2Q24’s net profit of MYR36.5m – after stripping away one- off items (including impairments and FX loss) – increased 42.1% QoQ and more than doubled YoY. This was driven by the increase in revenue (+9.1% QoQ, +32.2% YoY) as a result of higher activities due to project executions in the orderbook. Cumulatively, 1H24 core earnings increased two-fold – driven by the higher topline (+11.4% YoY), and coupled with better margins and improved performances of WSC’s JVs and associates.
Outlook. As of 2Q24, WSC’s orderbook stands at MYR3.7bn (+15% QoQ), bolstered by the addition of MYR1.1bn in new projects and variation orders. Notable recent wins include a substation project in the Middle East valued at c.MYR750m, as well as the Troll and Kasawari carbon capture & storage or CCS pipeline jobs. Key ongoing energy projects include the East African Crude Oil Pipeline or EACOP (c.45% complete) and Yinson Agogo, with an 83% completion rate (expected to be finalised by year’s end). The group's tenderbook remains strong at c.MYR7bn, with increased activity observed in Europe, while opportunities in the Middle East and Asia-Pacific regions also remain robust. Additionally, WSC has observed increasing interest in biomass energy boilers, a sector it plans to actively pursue in alignment with Malaysia’s National Energy Transition Roadmap or NETR.
Upgrade to BUY. We lift FY24F-26F earnings by 21%, 20%, and 20% to factor in stronger margins and lower tax expenses. Our TP is raised to MYR1.86 and is pegged to an unchanged 11x P/E (at its 5-year mean) and inclusive of a 4% ESG discount – this is based on WSC’s 2.8 ESG score vs the 3.0 country median. After a 28.7% drop in share price over the last three months, the stock is now attractively valued at 6.6x FY25F P/E.
Key downside risks include a decline in work orders from clients, softer oil prices that limits clients’ spending, and higher operating costs.
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....