KUALA LUMPUR: CIMB Equities Research is maintaining its outperform on Wah Seong Corp Bhd with a target price of RM2.81 pegged to an unchanged target price-to-earnings (P/E) of 15 times.
"Wah Seong remains Outperform, premised on the potential rerating catalysts of an expanding order book, and more mergers and acquisitions (M&As)," it said in a research note on Sept 1.
CIMB Research said Wah Seong's 2Q09 net profit of RM30 million took 1H bottomline to RM56 million. At 46% of its full-year forecast and 48% of consensus, it was largely in line with expectations as a stronger 2H is on the cards. Also not surprising was the interim tax-exempt dividend of 2.5 sen.
Wah Seong's 2Q revenue fell 8% on-year due to the completion of three pipe coating projects, namely Malaysia's Golok and Serampang (Murphy), Turkmenistan (Petronas Carigali & Mitco) and Australia's Dampier, worth a collective RM176 million. Another factor was the lower values for existing contracts.
"However, Wah Seong managed to expand its net profit by 33% because its contracts in hand carry higher margins. The main contract is the RM390 million pipe manufacturing and coating portion of the Sabah-Sarawak Gas Pipeline (SSGP) project. The group's performance should pick up in 2H as a result of increased pipe
shipments to SSGP," it said.
As at June 30, Wah Seong's order book was worth RM1.05 billion. It is vying for over RM4 billion worth of jobs, which include Chevron Gorgon LNG (900km) pipeline in Australia; Browse LNG (1,200km) pipeline in Australia, and Exxon Papua New Guinea LNG (900km) pipeline.
CIMB Research said the tenders are expected to be awarded by year-end. Wah Seong's facility in Sabah is strategically located, enabling the group to handle the Australian and PNG projects.
In August, Wah Seong announced a RM76 million deal to purchase Socotherm's stake in the group's major pipe coating unit PPSC Industrial.
"We understand that the group is keen on more acquisitions, one of which could involve beefing up the group's rental fleet of gas compressors and adding some RM400 million to revenue. Wah Seong's fleet capacity now stands at 75,000 horse power (HP) but the group aims to increase it by 15,000HP per annum over the next three years.
"Contributing 28% to the group order book, the engineering business is catching up with the industrial services and pipe coating and corrosion protection businesses," it said.
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