KUALA LUMPUR: Maybank Investment Bank Research sees Wah Seong Corporation as a major beneficiary from the resurgence in offshore fabrication orders, particularly for process equipment modules, as it rides on the strong FPSO orders pipeline.
“We see immediate catalytic earnings impact from FY20, thus our 28%-34% rise in FY20-21 earnings. Our TP also increases by71% to 94 sen, ” it said on Tuesday.
The research house said contrary to its earlier concern over its orderbook replenishment and earnings risks post the completion of its NordStream 2 (NS2) pipe-coating & services project in 1H20 (its single largest driver to order backlog and earnings since FY17), it sees WSC’s potential as it leverages on the boom in the FPSO market for the fabrication of process equipment modules.
“Should these tenders crystallise into orders, its 12ha yard in Batam could be well-utilised over the next 3 years. The orders value, in our view, would be substantial (RM500mil to RM800mil). Recall that WSC was awarded Yinson’s FPSO JAK project in 2015 for RM150mil to RM200mil, ” it said.
Maybank Research said assuming these orders are in, WSC’s order backlog could double, substantially minimising the NS2 impact, which ends by 1H20.
“It would instantaneously negate our earlier replenishment and earnings growth concern. Notwithstanding that, we foresee strong tenders pipeline for pipe-coating works in the Asia Pacific market, notably Australia. Translating those tenders into orders will further enhance its orderbook and earnings recovery beyond FY20.
“Our 28%/34% upward revision in FY20/21 net profit reflect a 17-21% increase in revenue, on a higher order backlog estimate of RM1.6bil in FY20 (vs. RM900mil now; historical high of RM3.8bil in FY17).
“Our higher TP (+71%) is now pegged to a higher FY20E P/E of 10.7x. This equates to its three-year mean valuation (vs. 8.2x, based on -1 SD previously), a fair assessment ahead of its orderbook/ earnings recovery prospects. Key risks include slower-than-expected order intake and execution mishaps, ” it said.