Wah Seong turned into the black in 1Q22 with a core net profit of RM4.7m (QoQ: -RM96.9m, YoY: +98%). We deem the results to be within expectations at 8% of both ours and consensus full-year forecasts as we expect subsequent quarters to be better for Wah Seong with further revenue and profit recognition from its EACOP and Qatar projects. We believe that FY22-23f would be a huge bumper year for Wah Seong with the EACOP job win (worth RM1.1bn). With that, we maintain BUY on Wah Seong with an unchanged TP of RM1.17/share based on 12x FY23f EPS – which is at a slight premium to its 5-year average P/E of 9.5x to reflect the positive job win prospects and earnings turnaround over the next 12- 18 months.

Deemed in-line. Wah Seong turned into the black in 1Q22 with a core net profit of RM4.7m (QoQ: -RM96.9m, YoY: +98%) – adjusted predominantly for: (i) RM1.0m of reversal of impairment loss on receivables; (ii) RM2.8m impairment loss in JV; and (iii) gain on disposal of an associate. We deem the results to be within expectations at 8% of both ours and consensus full-year forecasts as we expect subsequent quarters to be better for Wah Seong with further revenue and profit recognition from its EACOP and Qatar projects.

Dividends. No Dividends Declared.

QoQ. Wah Seong returned into the black with core profits of RM4.7m (from losses of RM96.9m) mainly due to improved performance from its oil & gas segment, which we believe stems from its coating plant project in Qatar.

YoY. Wah Seong’s profits almost doubled YoY to RM4.7m (vs profits of RM2.4m in 1Q21) and this was due to better revenues and profit margins from all of its business segments.

Outlook. Current order book stands at RM3.0bn as at end-1Q22 (O&G: 85%, RE: 14%, ITS: 1%) while tenderbook stands at c.RM4.0bn (mostly in Middle East and Australia). We are convinced that FY22-23f will be strong bumper years for Wah Seong with the recent line pipe thermal insulation EACOP job win worth about RM1.1bn – the group’s single largest job win since Nord Stream 2 back in 2016. We are excited about the group’s near-mid term prospects.

Forecast. We make no changes to our FY22-23f earnings estimates.

Maintain BUY, TP: RM1.17. We maintain our BUY call on Wah Seong with an unchanged TP of RM1.17/share (based on 12x FY23f EPS) which is at a slight premium to its 5-year average P/E of 9.5x to reflect the positive job win prospects and earnings turnaround over the next 12-18 months.

Source: Hong Leong Investment Bank Research - 24 May 2022