Wah Seong riding high on bullish job prospects

The bullish sentiment is centred on the company’s prospects of securing sizeable pipeline works in Qatar

By MARK RAO / Pic By wahseong.com

WAH Seong Corp Bhd (WSC) will need to secure firm contract wins to sustain the recent rally in its share price to a one-year high on bullish job prospects.

Shares in the global oil and gas (O&G) and industrial services group more than doubled from 61 sen on Oct 7 this year to RM1.24 yesterday, adding RM485.39 million to the company’s market capitalisation in just over a month.

The rally has largely been sentiment-driven as the company’s shares are trading at 16 times its estimated earnings per share, while its relative strength index is above 70 — indicating it may be overbought.

The bullish sentiment is centred on the company’s prospects of securing sizeable pipeline works in Qatar, while the uptick in the floating, production, storage and offloading (FPSO) market should bolster its engineering and fabrication division.

Recall the company entered into a shareholders’ agreement with Medgulf Construction Co WLL last month to form a new company to undertake the provision of anti-corrosion and concrete weight coating of pipelines for Qatar’s O&G industry.

A local industry analyst said engineering and fabrication work orders, particularly on topside modules installations, are forecast to rise with the return of the global FPSO market this year.

“The market believes WSC is poised to reap the benefit given its relationship with FPSO owners such as Modec Inc, Bumi Armada Bhd and Yinson Holdings Bhd, and its good reputation in handling their jobs previously,” the analyst told The Malaysian Reserve.

Yinson’s recent FPSO job, namely Marlim 2, with an estimated capital expenditure of US$1 billion (RM4.16 billion), raised expectations that WSC could be the prime candidate for related works, the analyst said.

WSC’s next catalyst will be its pipeline services division after setting up a joint-venture (JV) company with Medgulf — predicted to benefit from Qatar Petroleum’s Northfield project expansion, the analyst added.

This expansion will see its liquefaction capacity increase by 30% to 100 million tonnes per year by 2024.

The JV company, meanwhile, was asked to build coating plants in Doha following an international tender.

“Being the only successful pipeline company in the tender, the JV company looks set to be the sole contender for the pipeline jobs of the project, with more than 1,000km of pipelines needed to be delivered by 2024.”

However, these contracts — which are to provide a significant boost to the company’s earnings in the coming years — will need to be secured soon, as WSC’s share price rally was fuelled by anticipation of the company clinching these works.

The analyst said WSC needs to secure FPSO work orders by the end of this year or early 2020, while the pipeline projects in Qatar will need to be secured by year-end 2020, if the company is to sustain its momentum on the stock market.

As of the second quarter ended June 30, 2019 (2Q19), WSC’s orderbook stood at RM938.2 million, comprising RM558.1 million in O&G, RM326.9 million in renewable energy and RM53.2 million in industrial trading and services works.

Hong Leong Investment Bank Bhd recently raised its estimates for the company’s earnings in the financial years ending Dec 31, 2020 to 2021 (FY20 to FY21) by 18.2% to 10.1%.

This is on the accelerated crystallisation of the company’s outstanding tenderbook of RM5.4 billion (as of 2Q19) into its orderbook replenishment assumptions (from RM600 million in FY20 to RM1 billion in FY20).

Public Investment Bank Bhd, meanwhile, anticipates the company’s FY19 earnings to be weak, but will benefit from FY20 onwards from the potential award of topside modules installation and expected pipeline contracts.

Consequently, the research firm raised its FY20/FY21 estimates for the company by an average 23.3% — accounting for significant orderbook replenishments.

Analysts tracked by Bloomberg have two ‘Buy’ and four ‘Hold’ calls on WSC currently, with a one-year price target consensus of RM1.13 — representing a potential downside of 0.9% from the company’s last closing price.