Stock Name: WASEONG
Company Name: WAH SEONG CORPORATION BHD
Research House: AMMB
Wah Seong Corp Bhd
(April 2, RM2.69)
Reiterate buy at RM2.62 with fair value of RM3.40: Wah Seong's wholly-owned Gas Services International Ltd (GSI) has reached a settlement with Weatherford UK Ltd. Weatherford had claimed damages as a result of GSI's failure to deliver 28 booster compressors in time for testing and commissioning, comply with relevant standards, specification and fitness for purpose and commissioning/onsite support obligations.
Weatherford had claimed €2.4 million (RM11million) plus additional damages for the breach, which were to be offset against any amount owing to GSI, which had also filed a counter claim. In the settlement, Weatherford agreed to pay US$2 million (RM6.5million) to GSI.
We understand that Wah Seong had made some provisions for Weatherford's claims in the past quarters. But we are uncertain at this stage on the quantum of writeback of provisions arising from this settlement.
Assuming full writeback of the full US$2 million, we estimate that FY10 net profit could be raised slightly by 5% under a best-case scenario.
For now, we maintain our FY10F-FY12 estimates, which project an average earnings growth of 8%.
This is conservative compared to management's organic annual earnings growth target of 15% over the next five years.
Wah Seong's tender book of RM5.3 billion appears huge but most awards for the tenders are likely to be announced towards year-end. As such, there is a likelihood that Wah Seong's order book of RM1.4 billion currently could slide towards RM1 billion by 2QFY10, but rebound towards year-end as new orders materialise.
Wah Seong is still in advanced negotiations with Italy-based Orleans Group to buy a stake - around 60%-70% - in a former Socotherm pipe-coating facility in Port Harcourt, Nigeria.
But to mitigate the huge risks in Nigeria, Wah Seong is looking at a technical arrangement with the Orleans Group to provide pipe-coating consultancy services first but with an option to later buy an equity stake if the operation kicks off successfully.
The stock trades at an attractive CY10 diluted price earnings (PE) of 14 times, above Malaysia's oil and gas (O&G) sector of 12 times but below its five-year average of 16 times and peak of over 25 times.
We reiterate our buy call on Wah Seong with unchanged fair value of RM3.40 per share, pegged to FY10's PE of 18 times at parity to the stock's four-year average.
We still like the group for its proven expertise in pipe-coating, growing regional presence in the O&G industry and merger and acquisition excitement. - AmResearch, April 2
This article appeared in The Edge Financial Daily, April 5, 2010.
Company Name: WAH SEONG CORPORATION BHD
Research House: AMMB
Wah Seong Corp Bhd
(April 2, RM2.69)
Reiterate buy at RM2.62 with fair value of RM3.40: Wah Seong's wholly-owned Gas Services International Ltd (GSI) has reached a settlement with Weatherford UK Ltd. Weatherford had claimed damages as a result of GSI's failure to deliver 28 booster compressors in time for testing and commissioning, comply with relevant standards, specification and fitness for purpose and commissioning/onsite support obligations.
Weatherford had claimed €2.4 million (RM11million) plus additional damages for the breach, which were to be offset against any amount owing to GSI, which had also filed a counter claim. In the settlement, Weatherford agreed to pay US$2 million (RM6.5million) to GSI.
We understand that Wah Seong had made some provisions for Weatherford's claims in the past quarters. But we are uncertain at this stage on the quantum of writeback of provisions arising from this settlement.
Assuming full writeback of the full US$2 million, we estimate that FY10 net profit could be raised slightly by 5% under a best-case scenario.
For now, we maintain our FY10F-FY12 estimates, which project an average earnings growth of 8%.
This is conservative compared to management's organic annual earnings growth target of 15% over the next five years.
Wah Seong's tender book of RM5.3 billion appears huge but most awards for the tenders are likely to be announced towards year-end. As such, there is a likelihood that Wah Seong's order book of RM1.4 billion currently could slide towards RM1 billion by 2QFY10, but rebound towards year-end as new orders materialise.
Wah Seong is still in advanced negotiations with Italy-based Orleans Group to buy a stake - around 60%-70% - in a former Socotherm pipe-coating facility in Port Harcourt, Nigeria.
But to mitigate the huge risks in Nigeria, Wah Seong is looking at a technical arrangement with the Orleans Group to provide pipe-coating consultancy services first but with an option to later buy an equity stake if the operation kicks off successfully.
The stock trades at an attractive CY10 diluted price earnings (PE) of 14 times, above Malaysia's oil and gas (O&G) sector of 12 times but below its five-year average of 16 times and peak of over 25 times.
We reiterate our buy call on Wah Seong with unchanged fair value of RM3.40 per share, pegged to FY10's PE of 18 times at parity to the stock's four-year average.
We still like the group for its proven expertise in pipe-coating, growing regional presence in the O&G industry and merger and acquisition excitement. - AmResearch, April 2
This article appeared in The Edge Financial Daily, April 5, 2010.
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