Wah Seong FY19 profit better than expected due to 4Q numbers

Wah Seong Corp Bhd
(Feb 19, RM1.29)
Maintain neutral with a higher target price of RM1.44:For the fourth quarter ended Dec 31, 2019 (4QFY19), Wah Seong Corp Bhd reported a lower revenue of RM429.3 million, down 39.2% year-on-year (y-o-y), mainly due to the completion of the Nord Stream 2 project in 3QFY19.

Nevertheless, it reported a higher core net profit of RM21.7 million for 4QFY19, against RM7.8 million for QFY18, due to cost savings, expanding its gross profit margin by 6.3 percentage points. Stripping off an impairment loss on property, plant and equipment of RM34.7 million as well as other exceptional items amounting to RM11.3 million, the group’s full FY19 core net profit was lower, down 6.7% y-o-y to RM70.3 million, though beating our and the consensus forecasts by 19.1% and 15.2% respectively due to better-than-expected core numbers for 4QFY19.

The group’s earnings outlook appears more encouraging with potential awards of topside module installation for floating production storage and offloading, followed by pipeline contracts in Australia, Europe and Qatar. Wah Seong’s existing order book stands at RM929.6 million with replenishment expectations of around RM600 million to RM1 billion in the near term.

There are more pipeline-related jobs on the horizon, with the significant one being a Qatar Petroleum project with a contract value thought to be worth around RM1.2 billion to RM1.4 billion. This would translate into about RM720 million to RM840 million for Wah Seong based on its 60% stake in the joint-venture company bidding for the job. —PublicInvest Research, Feb 19