Stock Name: WASEONG
Company Name: WAH SEONG CORPORATION BHD
Research House: MIDF
Wah Seong Corp Bhd
(April 19, RM2.10)
Maintain neutral at RM2.13 with target price RM2.35: The Gorgon gas fields pipe-coating project in Western Australia finally delivered its first contribution to Wah Seong Corp (WSC) in 4QFY10, after a six-month delay. We understand that about 17% of the works were completed by end-1Q11, compared with 9% at end-2010.
This RM550 million project is expected to be fully completed in 1Q12. WSC's order book stood at RM1.4 billion as at end-2010, with the pipe-coating segment'' accounting for 46% or RM644 million (a big portion is from the Gorgon project), followed by engineering 32%, trading 10%,'' renewable energy 9% and pipe manufacturing 3%.
Assuming a job burning rate of RM450 million per quarter, the current'' order book will only last WSC until 3QFY11. More significant contracts are required to meet our and consensus' FY12 sales estimates of about'' RM1.8 billion and RM1.9 billion respectively. ''
WSC's present tender book is at circa RM5.3 billion with the bulk believed to be pipe-coating-related jobs, including a potential RM450 million to RM550 million each for Australia Pacific LNG and Gladstone LNG projects.
The outcome of'' the bids for both projects is expected to be known soon (by end-1HCY11). We have factored into our forecast either one of these two projects, which will contribute positively to WSC starting 1QFY12.
In addition, WSC has already been prequalified for the Wheatstone LNG and Ichtys projects in Western Australia, the submission of which will only start at the end of this year pending the completion of the environmental assessment. On a positive note, the planned Wheatstone LNG project will be developed by Chevron, the project operator of'' the Gorgon project. WSC's track record at Gorgon will be handy. ''
Tenders for the Malikai project off Sabah have been postponed till the end of this year due to some technical issues. We'' also learn from management'' that WSC has already put in its bid for the Kebabangan pipe-coating project off Sabah, which'' is initially planned to come after Malikai.
Petroliam Nasional Bhd will award the contract'' by June/July 2011. We believe WSC stands a'' good chance to win the job, given its deepwater coating capabilities and track record in Gemusut-Kakap off Sabah and Turkmenistan. The Kebabangan and Malikai pipe-coating works are estimated to be worth about RM200 million each.
In FY09, the pipe manufacturing division contributed 32.2% of WSC's pre-tax profit'' thanks to higher profit margins commanded from the Sabah Sarawak Gas Pipeline project (SSGP). Following completion of the project, contribution from the pipe manufacturing division declined significantly, accounting for only 1.2% of total pre-tax profit in FY10, a fall of -98.7% year-on-year.
Management indicated it is planning to downsize the pipe manufacturing division given its lacklustre outlook going forward. On the other hand, management is positive over the renewable energy business which has emerged as the second largest pre-tax profit contributor in FY10, overtaking the pipe manufacturing division. We expect'' growing renewable energy business to offset potential losses of the pipe manufacturing segment. ''
We are keeping our FY11 and FY12 numbers unchanged, for which we have factored in WSC's current RM1.4 billion order book and RM1.6 billion annual job replenishment assumption. Key risks include delays in contracts awarded and lower than expected job replenishment.
Given the limited competition in the deepwater pipe-coating business, we believe WSC will benefit from the ongoing'' development of deepwater oilfields. However, WSC's new contract flow remains slow and FY12/FY13 earnings still lack visibility at the current juncture.
As such, we are maintaining our 'neutral' stance unless the company secures more sizeable contracts. By ascribing a FY11 price-earnings ratio of 15.7 times, which is at a discount to its historical PER average of'' 20.4 times, we derive our target price of RM2.35 per share. ' MIDF Research, April 19
This article appeared in The Edge Financial Daily, April 20, 2011.
Company Name: WAH SEONG CORPORATION BHD
Research House: MIDF
Wah Seong Corp Bhd
(April 19, RM2.10)
Maintain neutral at RM2.13 with target price RM2.35: The Gorgon gas fields pipe-coating project in Western Australia finally delivered its first contribution to Wah Seong Corp (WSC) in 4QFY10, after a six-month delay. We understand that about 17% of the works were completed by end-1Q11, compared with 9% at end-2010.
This RM550 million project is expected to be fully completed in 1Q12. WSC's order book stood at RM1.4 billion as at end-2010, with the pipe-coating segment'' accounting for 46% or RM644 million (a big portion is from the Gorgon project), followed by engineering 32%, trading 10%,'' renewable energy 9% and pipe manufacturing 3%.
Assuming a job burning rate of RM450 million per quarter, the current'' order book will only last WSC until 3QFY11. More significant contracts are required to meet our and consensus' FY12 sales estimates of about'' RM1.8 billion and RM1.9 billion respectively. ''
WSC's present tender book is at circa RM5.3 billion with the bulk believed to be pipe-coating-related jobs, including a potential RM450 million to RM550 million each for Australia Pacific LNG and Gladstone LNG projects.
The outcome of'' the bids for both projects is expected to be known soon (by end-1HCY11). We have factored into our forecast either one of these two projects, which will contribute positively to WSC starting 1QFY12.
In addition, WSC has already been prequalified for the Wheatstone LNG and Ichtys projects in Western Australia, the submission of which will only start at the end of this year pending the completion of the environmental assessment. On a positive note, the planned Wheatstone LNG project will be developed by Chevron, the project operator of'' the Gorgon project. WSC's track record at Gorgon will be handy. ''
Tenders for the Malikai project off Sabah have been postponed till the end of this year due to some technical issues. We'' also learn from management'' that WSC has already put in its bid for the Kebabangan pipe-coating project off Sabah, which'' is initially planned to come after Malikai.
Petroliam Nasional Bhd will award the contract'' by June/July 2011. We believe WSC stands a'' good chance to win the job, given its deepwater coating capabilities and track record in Gemusut-Kakap off Sabah and Turkmenistan. The Kebabangan and Malikai pipe-coating works are estimated to be worth about RM200 million each.
In FY09, the pipe manufacturing division contributed 32.2% of WSC's pre-tax profit'' thanks to higher profit margins commanded from the Sabah Sarawak Gas Pipeline project (SSGP). Following completion of the project, contribution from the pipe manufacturing division declined significantly, accounting for only 1.2% of total pre-tax profit in FY10, a fall of -98.7% year-on-year.
Management indicated it is planning to downsize the pipe manufacturing division given its lacklustre outlook going forward. On the other hand, management is positive over the renewable energy business which has emerged as the second largest pre-tax profit contributor in FY10, overtaking the pipe manufacturing division. We expect'' growing renewable energy business to offset potential losses of the pipe manufacturing segment. ''
We are keeping our FY11 and FY12 numbers unchanged, for which we have factored in WSC's current RM1.4 billion order book and RM1.6 billion annual job replenishment assumption. Key risks include delays in contracts awarded and lower than expected job replenishment.
Given the limited competition in the deepwater pipe-coating business, we believe WSC will benefit from the ongoing'' development of deepwater oilfields. However, WSC's new contract flow remains slow and FY12/FY13 earnings still lack visibility at the current juncture.
As such, we are maintaining our 'neutral' stance unless the company secures more sizeable contracts. By ascribing a FY11 price-earnings ratio of 15.7 times, which is at a discount to its historical PER average of'' 20.4 times, we derive our target price of RM2.35 per share. ' MIDF Research, April 19
This article appeared in The Edge Financial Daily, April 20, 2011.
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