March 26, 2012

WASEONG - Secured substantial pipe-coating job in Turkmenistan?

Stock Name: WASEONG
Company Name: WAH SEONG CORPORATION BHD
Research House: HWANGDBSPrice Call: BUYTarget Price: 2.05



Wah Seong; Buy; RM2.05
Price Target: RM2.50; WSC MK

The Edge Weekly reported that Wah Seong is believed to have secured a contract from Petronas Carigali to coat c.90km of gas pipelines in Turkmenistan, an extension of an existing job that Wah Seong secured in Turkmenistan for Petronas' Turkmenistan Block 1 gas development project .

According to the article, Wah Seong is to coat 17km of offshore pipeline in the Diyarbakir field in the Caspian Sea and another 70km of pipelines in the Gurgany Deniz field. While there is no disclosure of the contract amount, we believe that it could be substantial, taking a cue from the previous pipe-coating contract awarded in Jul 08 which was worth RM150m to coat just 15.1km of 12'' pipeline. To recap, Petronas Carigali is the main partner developing the Block 1 project, pursuant to a production sharing contract signed in Jul 96.

Wah Seong has RM1.2bn worth of outstanding order book as at Dec11, which has been maintained throughout FY11. This positive newsflow is likely to be a strong boost to its order book. We have assumed RM450m worth of new pipe-coating order win in FY12. Therefore, we maintain our earnings forecast at this juncture. Nevertheless, we estimate that every RM100m increase in our pipe-coating order win assumption could potentially boost our FY12 earnings by 7%.

We maintain our Buy recommendation and RM2.50 TP, based on 15x FY12 EPS. We remain positive on  its O&G business, premised on the increasing capex spending in Malaysia and Australia.

Source: HwangDBS Research 26 March 2012

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