InvestIdeas

Affin Hwang Capital said Wah Seong had seen strong activities pick up in both its pipe
coating and engineering segments driven by improvement in global oil and gas (O&G)
capital spending on the back of higher oil prices.

Wah Seong recently won a RM1.1 billion contract for line pipe thermal insulation services
for the Qatar and East African Crude Oil (EACOP) project and a RM0.6 billion engineering
procurement and construction (EPC) contract to fabricate Yinson's FPSO Agogo topside
module.

"These series of new contract awards have resulted in a healthy outstanding order book
of RM3.2 billion (close to 2017 historical high of RM3.6 billion), providing earnings visibility
until 2024," it said.

Wah Seong also recently expanded its fabrication capacity by 1.5 times with an upgraded
loadout capability by acquiring another Batam yard, allowing it to take on more jobs.

Affin Hwnag said the company aimed to replenish RM2 billion of contracts in 2023 from
its current RM4 billion tender book.

"Wah Seong's key growth in the coming years will surround Africa (EACOP project) and
more Qatar contract potential wins," it said.

Affin Hwang said there was a lack of comparable peers both locally and globally, with
Shawcor (listed on the Toronto Stock Exchange) being the only other pipe coater.

Wah Seong's foreign shareholding is around the 15-17 per cent level.

"Based on Bloomberg consensus, its 2023-2024 profit is projected to grow by 44 per
cent/11 per cent.

"Based on these street 2023 estimates, Wah Seong is trading at a forward 7.6 times price
per earning (PE) multiple, a discount to the local small-mid cap O&G space valuation of
10-12 times," said Affin Hwang, which did not rate the stock.

Wah Seong, which is 40%-controlled by the Tan family of Tan & Tan Developments and IGB Corp, reported a narrower net loss of RM6.3 million for the financial year ended Dec 31, 2022 (FY2022), down 94% from RM107.48 million in FY2021 thanks to stronger order book.

The group’s revenue grew 88% to RM2.69 billion in FY2022 from RM1.43 billion in FY2021.

Expects the group, whose share price has climbed 47% since the beginning of this year, to deliver profitability in the “next few quarters” with the jobs on hand.

Of the RM3.2 billion order book as at end-March, about RM2.9 billion is from its energy services segment and RM260.7 million from its bioenergy services segment.

Wasco’s net profit for the three months ended March 31, 2024 (1QFY2024) more than doubled to RM57 million from RM21.76 million a year earlier.

Quarterly revenue grew 21% to RM643.94 million, compared to RM531.58 million.

Wasco Bhd’s net profit for Q1 2024 rose 162% to RM57 million, driven by higher revenue recognition from increased project executions.

Wasco Bhd announced its optimism about delivering better profits and revenue from its pipe coating, engineering, and bioenergy segments in the next few quarters, supported by its robust order book at RM3.2 billion as well as a tender book of RM7.25 billion.

Currently, the revenue contribution for the group’s pipe coating, engineering and bioenergy segments each stands at 40%, 40%, and 20% respectively.

The pipe coating market is projected to grow from US$8.3 billion (RM38.99 billion) in 2021 to US$10.6 billion (RM 49.79 billion) by 2027, with a compound annual growth rate (CAGR) of 6.8%.

Its revenue improved to RM643.94 million, marking a 21.1% year-on-year increase.