Wah Seong’s first contract win for 2018 showcases ability to win

KUALA LUMPUR: Wah Seong Corporation Bhd’s (Wah Seong) first contract win for 2018 showcases the group’s ability to win contracts apart from its core business of providing pipe-coating services, analysts say.

In a filing on Bursa Malaysia, Wah Seong announced that indirect wholly-owned subsidiary, Wasco Engineering International Ltd, a company incorporated in the British Virgin Islands and having its primary place of business at B5, Oilfield Supplies Center, Jebel Ali Free Zone, Dubai, United Arab Emirates has been awarded a contract by Basrah Gas Company, a company incorporated in Iraq with headquarters in Khor Al Zubair.

The contract, valued at US$34.56 million (equivalent to RM135.24 million), is for the design, packaging and sale of gas compressor packages and associated plant and site facilities.

“This is positive to Wah Seong, showcasing its ability to win contract apart from its core business of providing pipe-coating services,” the research arm of Kenanga Investment Bank Bhd (Kenanga Research).

“The contract involves the provision of gas compressors and process equipment, which entails engineering, detail design, procurement and packaging of the equipment.

“This is not surprising as the company has previously supplied similar packages to the same customer in Iraq.”

Kenanga Research recalled that the Middle East region contributed three to five per cent to Wah Seong’s financial year 2015-2016 (FY15-16) revenue.

The research arm reckoned the project margin should be lower than the typical pipe-coating services, at below 10 per cent, anticipating RM13.5 million earnings before interest and tax (EBIT) per annum, circa 7.8 per cent of its FY18 estimates.

Despite the new win enhancing Wah Seong’s outstanding orderbook by 4.8 per cent, Kenanga Research still kept its FY18-19E estimates, with core net profits at RM113.4 million and RM87.9 million respectively.

This was due to the win being within the research arm’s expectations, accounting for 27 per cent of the RM500 million order-book replenishment assumption for FY18.

The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) also made no changes to its earnings estimates as the project value was within its normal orderbook replenishment target for the group.

MIDF Research’s profit after tax and non controlling interest (PATANCI) for FY18F and FY19F was at RM115.6 million and RM122.2 million, respectively.

“Assuming a typical 10-12 per cent pretax margin for such engineering works, this project could contribute approximately RM1316 million to the group during the project duration,” the research arm said.