Stock Name: WASEONG
Company Name: WAH SEONG CORPORATION BHD
Research House: INTER PACIFIC
Wah Seong Corporation Bhd
(Aug 26, RM2.10)
Maintain outperform at RM2.30 with revised target price of RM2.90 (from RM3.10): We have tweaked downwards our FY2010F/11F earnings by 5% to 8% and trimmed our target price to RM2.90 (previously RM3.10) based on FY2010 EPS of 18.1 sen and PER of 16 times. Nonetheless, we reiterate our 'outperform' recommendation. Our optimism is due to Wah Seong's (i) vast experience in pipe coating; (ii) new contracts to pour in by 2HFY2010 with mergers and acquisitions (M&A); and (iii) sizeable cash pile of RM214.4 million as at end-June.
Wah Seong's annualised 1HFY2010 result came below both ours and consensus expectations at 26.4% and 28.4% of FY2010 forecast respectively. As expected, Wah Seong declared a first interim dividend of two sen per share for the quarter under review.
In 2QFY2010, net profit fell by 94.3% year-on-year on the back of lower revenue which fell by 33% y-o-y. The deteriorating performance was due to the huge drop in earnings contribution from the following core divisions: pipe coating (-137.7% y-o-y); pipe manufacturing (-144.8% y-o-y) and engineering (-101.3% y-o-y) given the sluggish demand for gas compressors, built by wholly-owned Gas Services International's yard in Singapore, as well as on the unexpected downtime on the Gorgon project. Production was stopped for a few weeks from late June. However, its trading gains will offset this (+100.7% y-o-y) as well as exploration and production (E&P) services (+10.4% y-o-y) respectively.
To recap, Wah Seong has secured the pipe coating job for the entire Gorgon project valued at about US$162.9 million (RM551.2 million). This will keep its Kuantan plant up and running until early FY2012. We learn that bulk of its revenue and profit will be recognised in FY2011. We believe the gross margin is healthy at 20% to 30% although the margins are not as attractive as the Gemusut deepwater pipe coating job executed in FY2009. ' Inter-Pacific Research, Aug 26
This article appeared in The Edge Financial Daily, August 27 2010.
Company Name: WAH SEONG CORPORATION BHD
Research House: INTER PACIFIC
Wah Seong Corporation Bhd
(Aug 26, RM2.10)
Maintain outperform at RM2.30 with revised target price of RM2.90 (from RM3.10): We have tweaked downwards our FY2010F/11F earnings by 5% to 8% and trimmed our target price to RM2.90 (previously RM3.10) based on FY2010 EPS of 18.1 sen and PER of 16 times. Nonetheless, we reiterate our 'outperform' recommendation. Our optimism is due to Wah Seong's (i) vast experience in pipe coating; (ii) new contracts to pour in by 2HFY2010 with mergers and acquisitions (M&A); and (iii) sizeable cash pile of RM214.4 million as at end-June.
Wah Seong's annualised 1HFY2010 result came below both ours and consensus expectations at 26.4% and 28.4% of FY2010 forecast respectively. As expected, Wah Seong declared a first interim dividend of two sen per share for the quarter under review.
In 2QFY2010, net profit fell by 94.3% year-on-year on the back of lower revenue which fell by 33% y-o-y. The deteriorating performance was due to the huge drop in earnings contribution from the following core divisions: pipe coating (-137.7% y-o-y); pipe manufacturing (-144.8% y-o-y) and engineering (-101.3% y-o-y) given the sluggish demand for gas compressors, built by wholly-owned Gas Services International's yard in Singapore, as well as on the unexpected downtime on the Gorgon project. Production was stopped for a few weeks from late June. However, its trading gains will offset this (+100.7% y-o-y) as well as exploration and production (E&P) services (+10.4% y-o-y) respectively.
To recap, Wah Seong has secured the pipe coating job for the entire Gorgon project valued at about US$162.9 million (RM551.2 million). This will keep its Kuantan plant up and running until early FY2012. We learn that bulk of its revenue and profit will be recognised in FY2011. We believe the gross margin is healthy at 20% to 30% although the margins are not as attractive as the Gemusut deepwater pipe coating job executed in FY2009. ' Inter-Pacific Research, Aug 26
This article appeared in The Edge Financial Daily, August 27 2010.
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