Despite a stronger 1QFY22, results were still below expectations due to over-optimism on its job recovery. Nonetheless, the quarter managed to turn around from losses (both QoQ and YoY), thanks to higher job deliveries and better margins. With its order-book now grown to ~RM3b, we believe WASEONG’s profitability outlook is increasingly certain. Maintain MP and TP of RM0.79.

1QFY22 below expectations. 1QFY22 core net profit of RM7m came in below expectations at 19% of our, and 12% of consensus, full-year estimates, mainly due to the over-optimism on its job recovery. No dividends were announced, as expected.

Better set of numbers. YoY, bottom-line managed to turn around from losses, helped by an improvement in job deliveries during the quarter (in tandem with revenue growing 38%). QoQ, while revenue stayed flattish, bottom-line also similarly managed to turn around from losses, helped by better margin mix for executed projects (gross margins +3.5ppt).

Order-book holds steady. Its order-book continues to grow, from RM2.7b in the previous quarter to currently ~RM3b, as projects are gradually revived on borders reopening. In fact, its order-book is currently the highest it has ever been since 2016 when it managed to secure the Nord Stream 2 project back then. As such, it is of high certainty that we believe WASEONG should post a profitable year, from concurrent losses over the past two years. With the group’s offerings mostly relevant in the green field space, WASEONG could benefit from the accelerated oil and gas capex spending globally, underpinned by the higher oil prices and recovery of the oil market, with its tender-book currently standing at ~RM4b.

Maintain MARKET PERFORM, with an unchanged TP of RM0.79, pegged to 0.9x PBV at roughly 0.5SD above its mean valuations. Post results, we slightly trimmed our FY22-23E earnings by 2% each after factoring in weaker growth rates and margins.

Going forward, we believe project execution and continued job wins are crucial for the company to sustain its current order-book and revenue visibility. Additionally, long-term improvements in the group’s ESG could also be a key area of interests.

Risks to our call include: (i) project execution risks, (ii) slower-than- expected order-book replenishment, (iii) unexpected escalation in project costs, and (iv) geopolitical and ESG factors surrounding projects that the group is involved in.

Source: Kenanga Research - 24 May 2022