Revamp options for Wah Seong


PLANS are in the pipeline to separate Wah Seong Corp Bhd’s oil and gas (O&G) and non-O&G businesses.  

Wah Seong executive director and chief executive officer of the O&G division Giancarlo Maccagno said it was part of the group’s five-year plan to transform from a small Malaysian industrial group to a major player in the Asian O&G industry by 2007. 

“We are studying all the options available to us. We should have a better idea of which direction to head towards in the next three to four months,” he told StarBiz

Speculation is rife on how Wah Seong plans to split its two divisions. 

Among the options are to spin off and list the O&G division, which consists mainly of the O&G pipe-coating business; engineering, procurement and construction; and rental of gas compressors, or divest the non-O&G division comprising agro-based engineering, infrastructure and trading of building materials. 

Giancarlo Maccagno

An industry observer noted that the most logical option would be for Wah Seong to spin off its O&G division and list it on a foreign bourse. 

“Wah Seong’s O&G business is an international business, with most of its revenue coming from overseas.  

“The group is also beefing up its non-O&G business, so divestment may not be in the books. The division could become Wah Seong’s core business instead,” he said. 

Avenue Securities Sdn Bhd analyst Tursina Yaacob believes that the best option for the group would be to list its O&G business. 

“This should provide better value for Wah Seong compared with selling off the non-core business. 

“The Singapore Stock Exchange may be the best bourse to look at, as it is nearer to Malaysia and the O&G sector is widely understood by investors there,” she said. 

Tursina said this would enable Wah Seong to realise the value of its O&G business and use the proceeds to pare down debt, expand its business, and improve research and development and technology, as well as to fund capital expenditure. 

“It will also strengthen holding company Wah Seong’s balance sheet and cashflow since the listed O&G business will be able to gear itself up without much impact on the group,” she said, adding that Wah Seong’s valuations would improve as well. 

On the flip side, an analyst with a local stockbroking firm noted that the move would dilute Wah Seong’s earnings. 

“In addition, the group may not necessarily get what they are looking for, that is, higher valuations, as there are no guarantees. 

Pipes from all over the world are shipped for coating at Wah Seong's plants.

“There also appears to be some delay from the original timing as the group was expected to announce something a couple of months ago,” he said. 

Wah Seong’s O&G division has grown by leaps and bounds, especially in the past few years. 

“We are ahead of schedule in our transformation plan. We aim to hit revenue of RM1.5bil this financial year ending Dec 31, 2006, instead of 2007. Based on the first-quarter results, we are on track to achieve our target,” Maccagno said. 

Wah Seong recorded a 123.2% jump in revenue to RM428.9mil for the first quarter ended March 31 compared with the same period last year, while pre-tax profit rose 20.8% to RM19.2mil.  

Maccagno said the O&G division had tendered for RM3.5bil worth of projects as at last month. 

“A large portion of the projects is from overseas. We expect most of them to be awarded within the year and work to start next year or in 2008,” he said. 

One of the bigger projects that the group is bidding for is the Papua New Guinea pipeline. The entire project is worth about A$5.5bil and estimated to be 3,000km long, including onshore and offshore pipelines. 

Maccagno said besides pipe-coating services, Wah Seong was also tendering to provide gas compression services, fabrication work and onshore pipeline construction. 

All in all, the group is bidding for jobs worth RM1.7bil to RM1.8bil related to the PNG pipeline. 

Not one to rest on its laurels, the group, which has been consolidating and integrating its businesses in the past year after a spate of mergers and acquisitions (M&As), is now on the M&A trail again. 

“We are looking for companies which fit in with our strategy, focusing on pipe coating-related businesses and O&G infrastructure. It will be service-oriented businesses, which value-add but are low in assets. 

“We like companies with good technology, branding, a global marketing network and, most important, those which can integrate with the Wah Seong culture,” Maccagno said. 

He added that the group would be more focused on expanding its other O&G businesses as they held more opportunities for M&As compared with the pipe-coating business, which was dominated by a few large players. 

The group is very excited about the gas compression business under subsidiary Gas Services International Ltd (GSI). 

“We have put in a fair bit of time and resources into the business. The demand for liquefied natural gas is growing very fast – it will be the fastest growing energy source in years to come. 

“Although we are still a small player compared with the Americans, our advantage is that we are able to provide operations and maintenance services to our clients on site,” Maccagno said. 

Another analyst from a local brokerage said exploration and production (E&P) activities were expected to continue rising, given the high oil prices, and this should benefit Wah Seong's new non-pipe coating businesses such as GSI's gas compressor fabrication and leasing business. 

“There are significant opportunities to compete against the incumbent US companies in this region.  

“However, GSI is very small currently versus its competitors and will need to build up its inventory of gas compressors to lease to E&P companies,” he said. 

For the pipe-coating business, the analyst foresees performance to be flatter this year, given the completion of Petroleum of Thailand's Third Transmission Pipeline Project. 

“Next year looks better. China and Russia signed an Energy Cooperation Agreement in March and this will likely involve laying a parallel East-West gas pipeline from Russia to China.  

“Wah Seong and its newly-acquired China subsidiary Kanssen (Yadong) Pipe Coating Services Ltd were involved in the first East-West pipeline and will be in a strong position to win contracts on the new pipeline,” he said. 

 WASEONG :  [Stock Watch]  [NewsWASEONG-L :  [Stock Watch]

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