Wah Seong's Qatar venture wows ‘em

Wah Seong deputy managing director and CEO of O&G division Giancarlo Maccagno(pic) reckoned that the expansion would require the construction of more than 1,000 km of new pipelines, both onshore and offshore.

PETALING JAYA: Wah Seong Corp Bhd’s venture into Qatar, with an eye to capture a big slice of the kingdom’s upcoming gas pipe coating business, has whetted investors’ appetite for the stock.

Last month, the company said it is setting up an anti-corrosion and concrete weight coating plant in the gas-rich kingdom together with a local partner.

Since then, the stock had surged 84% at last Friday’s closing price of RM1.12, just off its recent high of RM1.15.

At current level, the stock is at its highest since September last year.

Qatar, the biggest exporter of liquefied natural gas (LNG), has announced plans to expand its output to 110 million tonnes by 2024 from about 77 million currently.

Wah Seong deputy managing director and CEO of O&G division Giancarlo Maccagno reckoned that the expansion would require the construction of more than 1,000 km of new pipelines, both onshore and offshore.

“Our new coating facility in Qatar will place us in a unique position to capture the coating work and associated logistics of those pipelines, ” he told StarBiz in an email reply.

This year alone, Wah Seong had signed two partnership agreements with two Qatar-based companies namely Qatar Petroleum and Medgulf Construction Company to bid for jobs related to LNG pipeline.

The first one was in February with Qatar Petroleum to set up a new pipe coating factory in Qatar.

The facility is expected to be completed in the first half of 2020.

It also signed a joint venture agreement two weeks ago with Medgulf to combine capabilities and expertise in the provision of pipe coating in Qatar as well as in other parts of the Middle East, Europe and East Africa.

As at June 30, Wah Seong’s order book stood at RM938mil, which RM558mil was from the O&G segment, RM327mil from the renewable energy segment, and RM53.2mil from the industrial trading and services sector.

Maccagno said the group’s outlook, especially in the oil and gas business business, is “extremely positive.”

“Europe, Qatar and pipeline projects in the region will provide tremendous growth opportunities for the pipe coating business, ” he said.

Meanwhile, he said the group’s engineering division is well-positioned to secure large engineering, procurement and construction (EPC) contracts for floating production storage and offloading (FPSO) topside.

“While its outlook is now undoubtedly much more positive than before, underpinned by the increased order-book replenishment visibility, we feel that the recent almost perpendicular jump in share price from its base could see some consolidation, ” Kenanga Research said in a report.

“Its earnings could still be underwhelming for the coming 2-3 quarters given its dwindling order book before the execution of new jobs kick in, ” the research house added.

At current market price, the stock is valued at 13.35 times its projected earnings.

Aside from Qatar, Kenanga said Wah Seong is also bidding for pipe-coating jobs in Australia, Europe and Africa worth about RM5.4bil.

“Among these, we see possible job awards of around US$100mil from Australia in the coming 12 months, with Wah Seong also being the frontrunner for many of the job tenders, ” it said.

Interestingly, several research houses had turned bullish on the Wah Seong’s prospects.

For instance, Maybank IB Research has raised its forecast on Wah Seong’s FY2021 earnings estimates by 46% and kept FY19-20 estimates outlook unchanged.

“The upgrade in earnings takes mainly into account the Qatar project’s higher earnings of additional RM30mil and and net margin, ” it said in a recent report.

It pointed out that for FY2020, Wah Seong’s earnings would be driven by its engineering side as it rides on FPSO projects.

According to Wah Seong’s corporate slides, quoting WGE Analysis & Energy Maritime Associates, there are about 69 floating production systems are expected to be installed in the next five years.

AllianceDBS Research had raised its FY19 order book estimates on Wah Seong by Rm300mil and RM1bil in FY20 to take into account the potential wins from its FPSO bids with Yinson, pipelines and other smaller pipe coating contracts globally.

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