RHB Investment Bank (RHB IB) initiated coverage for integrated energy infrastructure group, Wasco Bhd, with a BUY call for its bright prospects and robust pipelines
“We like Wasco for its near-term earnings potential, led by a strong orderbook and tender book, helped by strong floating production storage and offloading (FSPO) demand and its gas project.
“In the longer run, we believe Wasco should be able to ride on the opportunities arising from the global energy transition wave, capitalising on its EPC and pipe-coating capabilities amidst sustainable growth within its bioenergy arm,” it said in its Malaysia Initiating Coverage note today (Jan 18).
It sets the target price (TP) at RM1.43 based on 11x FY24F P/E (the 5-year mean) and includes a 4% ESG discount, 42% upside.
The research house said Wasco solid order book and bright prospects.
“As of 3Q23, Wasco’s orderbook is valued at RM3.6 billion, of which RM3.3 billion or 92% is related to energy services, followed by bioenergy services at 8% while its tenderbook is currently RM7 billion, of which the bulk is accounted for by the oil and gas (O&G) unit for both pipe-coating and engineering works.
“The jobs are from the Middle East, Australia, Africa and Malaysia. Wasco targets to continue its strong replenishment rate in the second half of 2024 (2H24). Hence, we believe it will be able to maintain its orderbook value at more than RM3 billion by end-2024,” it said.
Besides that, RHB IB said the group has been securing more energy transition-related jobs, and its track record is essential for the
company to clinch more relevant projects in the growing renewable energy (RE) and clean energy industries.
“Although energy transition-related jobs account for only 6% of its existing RM3.3 billion outstanding energy services orderbook, we expect this percentage to increase over the years.
“It also secured its maiden line pipe coatings contract for a carbon capture and storage (CSS) project worth USD13 million at the Port of Rotterdam for Nederlandse Gasunie.
“According to management, there are approximately 5,000km of pipelines for CCS projects planned between 2024 and 2027, translating to an estimated USD1 billion worth of potential pipe-coating job opportunities.”
Beside that, the research house said the group also saw steady growth from the bioenergy arm, which contributed 10% of 9M23 topline, is expected to provide a growing, yet stable and recurring earnings stream as there are more new turbine installations enlarging the operations & maintenance (O&M) customer base.
“Long-term growth will be further anchored by the National Energy Transition Roadmap (NETR) rollout last year. Malaysia targets to increase its bio-refinery capacity to 3.5 billion litres, and raise biomass and biogas power generation capacity to 1.4GW by 2050.
“We expect Wasco to register 4 to 40% year-on-year (YoY) earnings growth in FY23 to FY25 – led by higher billings from existing contracts,
with the possibility of better contributions from its JVs and associate firms, while higher O&G upstream activities should lead to better maintenance jobs and higher vessel demand,” it added.
The downside risks to RHB IB’s call are decline in work orders from clients and softer oil prices limiting clients’ spending, and higher
operating costs.
