Maybank Investment Bank (Maybank IB) maintain a BUY call on a TP of MYR1.20 on Wah Seong Corporation Berhad based on its 1Q23 core results show strong YoY growth (+282%), on track to meet the banks estimate on a stronger 2H23 outlook.
The bank remains positive on its outlook on stronger order backlog, tender pipeline, margins). Wah Seong’s Qatar ops are centrally poised to inspire growth, delivering a similar impact as its Nordstream (NS2) project in 2017. Valuations are undemanding, should it deliver to expectation. Our TP is unchanged, pegged to 10x FY23 PER.
Snapshot of 1Q23 results
Headline net profit of MYR22m (+342% YoY) in 1Q23 included one-off items (+MYR6m), comprised largely of an MYR8m gain from the sale of a property land under its Industrial, Trading & Services (ITS) ops in Penang and (ii) forex loss (-MYR2m). Excluding that, WSC reported core net profit of MYR15m (+282% YoY), 16% of our FY estimate.
Maybank IB deems this to be in line, on expectation of a stronger earnings performance from its energy solutions’ (formerly known as O&G) pipe-coating (EACOP, Qatar) and modules (Yinson’s Agogo) ops in 2H23. Operationally, its 3 key divisions showed YoY growth in 1Q23, led by its energy solutions (9x YoY) fabrication ops.
Project-wise, its EACOP’s facility (provision of line pipe thermal insulation services) is now at a 50% completion rate (vs. 25% in Dec 2022) and contributed a sub-10% of Group’s revenue in 1Q23.
Optimism ahead
Maybank IB’s estimates are unchanged, incorporating MYR2b-3b job wins in FY23- 24. Its mid- to longer-term outlook is showing good promise: (i) steady orderbook (pipe-coating loaded) @ MYR3.5b as at Mar 2023 and (ii) strong tender pipeline (~MYR5b). The bank does not rule out WSC growing its order backlog to MYR4b this FY, given the strength in oil price and capex spending in the energy sector. WSC would consider the sale of its investments (i.e. 26.9% Petra Energy, 49% Alam-JV) and/ or other non-core assets, should there be a compelling offer on the table.
The Qatari catalyst in FY23-24
The Qatar ops alone could potentially offer WSC a cumulative MYR180m net profit over 3 years (2022-24E). Subsequent phases (2 tenders p.a.) in Qatar will be another key feature to WSC this FY. Securing new orders from there on a constant basis (over the next 36 months) will be a catalyst, for they will offer similar earnings impact to the NS2 project.
