Wah Seong’s orderbook could sustain for 1 year

It orderbook currently stands at RM1.2b which comprises of 76% from O&G, 22% from RE and 2% from industrial trading and services

By RAHIMI YUNUS / Pic source wahseong.com

WAH Seong Corp Bhd’s orderbook is believed to be not enough to sustain its earnings for more than one year despite an improved performance seen in the second half of the financial year 2020 (2HFY20).

Hong Leong Investment Bank Research analyst Low Jin Wu said the research house is in cognisant of improvement in results in 2H20 but it chose to remain cautious over the orderbook and, hence, increased its target price (TP) to 60 sen based on 0.5 times the price-to-book value in FY21 but maintained its ‘Sell’ call.

In a report, the analyst noted that Wah Seong’s current orderbook stands at RM1.15 billion as at third quarter of 2020 (3Q20), comprising 76% from oil and gas (O&G), renewable energy (RE) (22%), and industrial trading and services (2%).

He said the contract award from the Qatar North-field expansion gas project is only expected to amount to around RM300 million to RM350 million.

“However, Wah Seong has made some headroom into the green energy space as the company has secured RM47 million of wind and hydro projects in FY20. We believe that the RE space would be a catalyst for Wah Seong’s growth as we believe that its reliance on large- scale gas pipeline coating projects is not sustainable,” Low said in the report.

He revised the net profit (loss) forecast from RM68.5 million/ RM40.2 million to RM25.8 million/ RM47.6 million for FY21/FY22 in view of the company’s better than expected 2H20 performance.

The group reported core net profit (CNP) of RM17.2 million in 3Q20, up by 72.3% quarter-on-quarter despite a 14.9% corresponding decline in revenue.

For the full year of FY20, the group recorded a core net loss of RM50.2 million compared to RM70.3 million CNP in FY19.

The weaker performance was mainly due to global lockdowns in the early part of the year, attributed to the Covid-19 pandemic, hence slower project executions and deferment of some projects.

Public Investment Bank Bhd foresees earnings recovery continuing from FY21 onwards, backed by its outstanding orderbook of RM1.1 billion and tender book of RM4.2 billion, with significant awards expected in FY21.

The bank maintained ‘Neutral’ rating for Wah Seong with an unchanged TP of 80 sen based on 16 times price-to-earnings ratio over FY21 earnings per share.

Wah Seong shares ended 0.68% lower yesterday to 72 sen with a market value of RM557.9 million.