Kenanga IB sets 62 sen target price for Wah Seong

KUALA LUMPUR: Wah Seong Corp Bhd’s earnings have peaked, with potential job wins expected to come only in the second half and early next year, said Kenanga Investment Bank Bhd (Kenanga IB).

Wah Seong’s results for last year had come in below expectations due to slower job billings and margin compressions in the fourth quarter, said Kenanga IB.

“We believe earnings have peaked. The order book has continued to shrink while the tender book is staying flat, signalling no new bids made in recent months,” it said in a report yesterday.

Kenanga IB has kept its “underperform” call on Wah Seong, with a target price of 62 sen.

“Wah Seong’s financial year 2018 (FY2018) core net profit of RM63.3 million came in below expectations at only 68 per cent of our forecasts, dragged by poorerthan-expected performances in its oil and gas segment due to slower-than-expected profit recognition from Nord Stream 2 and the renewable energy segment, as well as margin compressions from equipment fabrication and steam turbines.

“FY2018 core earnings plunged 35 per cent year-on-year dragged by higher taxes. We believe it is due to lumpy tax expense recognition from overseas projects, particularly Nord Stream 2, coupled with losses in associates and joint venture (JV), of which included impairment losses.

With no significant new contract wins recently, the company’s order book has dwindled to RM1.1 billion, of which Nord Stream 2 is understood to be the largest contributor . It has a tender book of about RM6 billion, mainly from overseas bids in Australia and Europe.

Meanwhile, Public Investment Bank Bhd (PublicInvest) said the drop in annual profit was mainly due to higher operating expenses arising from increase in start-up cost for new orders and impairment losses by its JV company of about RM12 million.

“Stripping-off all the exceptional items amounting to RM10.5 million, Wah Seong’s core net profit of RM75.3 million was below our consensus forecast.

“But we maintain our FY2019FY2020 forecasts as normal order of business is expected to resume, underpinned by the current outstanding order book of RM1.1 billion,” it added.