Wah Seong’s share price ahead of valuation
KUALA LUMPUR: Wah Seong Corporation Bhd’s (Wah Seong) current share price is ahead of valuation due to anticipation of improved results in its third and fourth quarters of financial year 2017 (3Q and 4QFY17).
MIDF Amanah Investment Bank Bhd (MIDF Research) in a result review shared that the group’s share price of RM1.22 at closing on November 29 is a 27 per cent run up from its valuation of RM0.89 on July 1, 2017.
“We believe this is in anticipation of the improved results in 3Q and 4QFY17 from the increased activities of the Nord Stream 2 AG,” they explained.
Recall that in September 2016, Wah Seong was awarded a RM2.8 billion job for concrete weight pipe coating, storage and logistics by Nord Stream 2 AG for its Nord Stream 2 (NS2) project.
According to management the NS2 project is now progressing on-track and activities have started picking up in 2HFY17 – translating into significant positive earnings for the company.
So far, Wah Seong’s 3QFY17 earnings have greatly reflected this with a 76.6 per cent increase quarter over quarter to RM30.6 million, attributable to its healthy orderbook that mainly consists of the NS2 project at 77 per cent.
“In addition, the management has also mentioned that with the recent rise in global crude oil price, there has been a slight pickup in projects offered for tender.
Due to this, the price earnings ratio (PER) has increased from 10 fold to its 12.4 fold in FY17,” said the research arm.
These projects are however more forward looking towards late-2018 and are only expected to materialise in 2019 and 2020, added MIDF Research.
And while MIDF Research is anticipating sustained and improved earnings for Wah Seong going forward, they highlighted that investors have been too overly eager on the stock, causing its share price to increase at a faster pace than its valuations.
“Thus, we downgrade our call on Wah Seong to ‘Trading sell’ from ‘Neutral’ with an unchanged target price of RM1.04 per share, which is based on EPS18 of 10.4 sen pegged to PER18 of 10 fold,” declared the research arm.
Overall, we expected sustained earnings for Wah Seong going forward.
In September 2016, Wah Seong was awarded the coveted 600 million euro job for concrete weight pipe coating, storage and logistics by Nord Stream 2 AG for the Nord Stream 2 project.
This project, which is worth approximately RM2.8 billion.