Wah Seong (WSC) reported a core net profit of RM4.1m for 1QFY22, compared to a core net profit of RM1.9m reported in 1QFY21. This is in tandem with higher revenue (+37.6% YoY) from better oil and gas as well as renewable energy segment contributions. We deem the results as below expectations however, only meeting 7% and 5% of our and consensus full year forecasts respectively, despite earnings that are expected to pick up in the coming quarters on higher execution of its Qatar project. Key drag for the quarter is mainly due to the losses of ~RM11.2m at the associate level, and temporary hiccup in delivering its Qatar project. As such, we revise FY22 earnings forecast lower by 12.4% and 5.1% on average for FY23/24. Outstanding orderbook in hand expanded further to RM3bn, despite the current burn rate. Tender book remains substantial in excess of RM4bn with more jobs to come from the Qatar North Field Expansion project. We maintain our Outperform call for Wah Seong with a higher TP of RM0.99 (from RM0.91 previously), as we roll over valuations to FY23 EPS, based on a 12x PE multiple. We expect the Group to register >100% YoY earnings growth in FY22 as work momentum continues.
- QoQ results highlight. 1QFY22 revenue was higher by +0.8% QoQ, reflecting higher project execution for the works secured last year. Subsequently, WSC reported core net profit of RM4.1m from a core net loss of RM1.7m in 4QFY21. Profitability continues to improve with gross and net margin expanding to 13.7% and 0.9% from 10.2% and -0.4% respectively, mainly attributed to the relaxation of SOPs hence most projects moving into more advanced levels of execution. The results are deemed below expectations however, attributable to the ~RM11.2m losses at associate level, from i) Evraz Wasco (49%-owned) given the soft pipe coating market in the region, and ii) Petra Energy (27%- owned) on the back of lower activities performed as well as lower vessel utilisation due to monsoon. Profitability was also weighed by temporary hiccups in delivering on its Qatar project.
- Earnings will be supported by healthy orderbook. FY22 will still be a better year given the relaxation of work-related SOPs, supported by its healthy orderbook. Outstanding orderbook in hand expanded further to RM3bn (against RM2.7bn in the previous quarter) despite the current burn rate of RM458.8m. The current orderbook includes the contract from the East African Crude Oil Pipeline valued at USD254.1m (~RM1.1bn). With Wah Seong’s 50.1% effective stake in the subsidiary, total value attributable to WSC for the contract is only about RM532m however. Tenderbook remains substantial in excess of RM4bn with more jobs to come from the Qatar North Field Expansion project.
Source: PublicInvest Research - 24 May 2022