Wah Seong Corporation (WSC) reported core net profit of RM14.1m for 1QFY23, from a core net loss of RM11.9m in 1QFY22, on the back of higher revenue of RM639.7m, +110.6% YoY. Energy solutions services (ESS) (+147% YoY) remained the performance driver for this quarter, followed by industrial trading services (ITS) (+101.9%) and renewable energy (RE) (+87.6%). Although WSC reported lower core net profit of RM14.1m on a sequential basis (-47.4% QoQ), we deem this as a commendable start, exceeding our FY23 estimates at 31.3% of full-year numbers, though lagging consensus at 19.1%. We gather that most of the key projects are still at initial stages in 1QFY23 and will go into full swing in 2H2023. This includes the EACOP, Yinson Agogo and Qatar projects, which is part of its existing orderbook of RM3.5bn. On account of stronger work flows ahead, we raise our FY23-25 estimates by an average of 53.4%. We also upgrade our call to Outperform (from Neutral) with a higher TP to RM1.00 (from RM0.70) based on PE multiple of 11x with rollover FY24 EPS (+1 standard deviation of blended Forward PE).
- Project highlights. 1QFY23 revenue grew +110.6% YoY, driven by the ESS segment, mainly engineering and fabrication services, which includes E-house and substation buildings, despite few key projects remaining at initial stages. On the update for EACOP, WSC is expected to complete the facilities building stage by end of July before it enters to full pipe coating production from August onwards. As for the Qatar project, it expects to receive the first pipe for coating by June for its plant in Kuantan. As for Yinson’s FPSO topside module, project progress remains at preliminary stages, though we expect it will expedite the progress from 2QFY23 onwards.
- Sanguine on 2H2023. We gather that the revenue recognition is now stable and hovering at around RM600-800m a quarter on the back of its strong orderbook of RM3.5bn. Some key projects are expected to go into full swing in 2H2023. Management remains confident on its near- to medium-term outlook given the strong tenderbook of RM5bn comprising its pipe coating segment (i.e NFPS Qatar) and engineering segment (related to several e-houses and MOPU or FPSO), which will be awarded in 2H2023. Gross margins remain healthy at double digits.
Source: PublicInvest Research - 24 May 2023