KUALA LUMPUR: PublicInvest Research says Wah Seong Corp Bhd's subsidiary's distributorship agreement with Ammann BauAusrusting AG to become its exclusive dealer in West Malaysia will not have a meaningful impact to earnings.
The research house said that while the development is positive, the major contributor to the group's operational profit is pipeline coating services.
"While the distributorship is expected to contribute positively to the earnings of the WSC Group over the period of the agreement, we keep our forecast unchanged as further details of the agreement remains unknown.
"In addition, we think the net impact is not likely to be meaningful to the Group’s operating profit numbers as the major contributor is still its pipeline coating services."
PublicInvest added that Wah Seong's earnings outlooks is expected to remain stable up to next year backed by its healthy orderbook of RM2.5bil including RM472mil in new contracts year to date.
Its tender book stands at RM5.8bil, mainly from pipeline projects in Australia and Europe.
"The status of our local pipeline projects i.e., Trans Sabah Gas Pipeline and Multi Products Pipeline are uncertain. Oil and gas offshore activities have picked-up in recent months but more on brownfield projects which are less capex-heavy amid operators’ cost vigilance.
"Pipeline coating services are typically applicable to greenfield projects, hence partly explaining its slower job wins," said the research house.
It upgraded its call on the counter to trading buy in light of recent price weakness, but with an unchanged target price of RM1.64.
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