WZ Satu’s earnings outlook dependent on contract execution in 2019

by RAHIMI YUNUS / graphic by TMR

Affin Hwang Investment Bank Bhd foresees WZ Satu Bhd’s construction and oil and gas (O&G) divisions to post further losses moving ahead and has cut its earnings estimate for the company to RM2.7 million net loss for its nancial year ended Aug 31, 2019 (FY19), versus a net profit of RM10.6 million forecasted previously.

Affin Hwang has also trimmed the company’s earnings forecasts by 50%-72% for FY20 and FY21 estimates.

“We reiterate our ‘Sell’ call with an unchanged 12-month target price of 14 sen, based on 20% discount to revalued net asset value,” the investment bank noted in a research note recently.

WZ Satu posted a net loss of RM11.8 million for the first quarter ended Nov 30, 2018 (1Q19), versus a net profit of RM497,000 a year ago mainly due to losses at its construction and O&G segments.

Its construction division continued to incur losses due to the high cost to complete the RM499 million West Coast Expressway Section 9 subcontract and subcontract for the Refinery and Petrochemical Integrated Development project.

Its bauxite mining associate companies contributed a lower net loss of RM100,000 in 1Q19 compared to RM1.3 million loss in the same period in the precedent year.

Affin Hwang said the key upside risks for WZ Satu are higher than expected new contract wins, lifting of the bauxite mining ban, higher than expected O&G earnings and orderbook replenishment.

It added that WZ Satu’s current orderbook of RM731 million should support a return to profitability in FY20, although price-to-earnings valuations remain expensive at 57 times of FY20 estimates earnings per share.

Affin Hwang said the recent rebound in WZ Satu’s share price from a five-year low of 17.5 sen on Dec 11, 2018, to a high of 41 sen recently, was possibly because of speculation of political links to the newly-crowned Yang di-Pertuan Agong who hails from Pahang.

WZ Satu’s executive chairman and major shareholder Tengku Datuk Seri Uzir Tengku Ubaidillah is a cousin of the 16th Yang di-Pertuan Agong Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah.

WZ Satu share was last traded at 32 sen each on Monday.