Wah Seong eyes Canada, Europe markets
KUALA LUMPUR: Being one of the top two global players in the oligopolistic pipe-coating industry, Wah Seong Corporation Bhd (Wah Seong) is sharpening its edge to compete with other competitors such as Bredero Shaw, a Canadian based company.
While Wah Seong is actively penetrating the Canadian market via its joint venture with Evraz Inc NA Canada, Kenanga Investment Bank Bhd (Kenanga Research) it is also aiming to widen its market share in Europe.
“Although there might not be another similar mega project up for grab immediately in the near term after Wah Seong completes its Nord Stream 2 project in FY19, we reckon that the company is well poised to capture the increasing pipecoating job opportunities in Europe,” it said in a report yesterday.
“This is largely leveraged on its four strategically located plants in Greece, Finland, Germany and Norway; as well as its ability to execute major projects backed by its good track records.
“Furthermore, its scalable mobile plants coupled with contractual manpower hires allow it to maintain a relatively flexible cost structure.”
On the other hand, the research firm said Wah Seong’s pipe coating prospects remained positive on the home turf.
It said some of the jobs include the 800-km pipe manufacturing and pipe-coating jobs for the Multi Products Pipeline (MPP) project connecting Pengerang to Perlis as well as the 600km pipe manufacturing and pipe-coating jobs for the Trans Sabah Gas Pipeline (TSGP) project, which could be awarded soonest by the first half of 2018 (1H18).
“Note that both the projects are owned by Suria Strategic Energy Resources Sdn Bhd (SSER), a special purpose vehicle owned by the Ministry of Finance with China
Petroleum Pipeline Engineering Co (CPP) being the main contractor,” it highlighted.
“We believe Wah Seong stands a good chance to win the projects, being the only API certified local pipe manufacturer to compete with Chinese contractors.”
While Kenanga Research maintained its earnings estimates pending results announcement next month, it did not discount the possibility of outperformance premising on higher quarterly pipe-coating activities from Nord Stream 2 in 4Q17.
“That said, our and consensus implied 4Q17 earnings forecasts both at RM28 million are still conservative, which imply an 18 per cent quarter on quarter decline compared to its 3Q17 core earnings of RM34 million,” it said.
“Following the disposal of its 49 per cent owned plantation business in Congo end of last year, we see minimal impairment risk going forward except for its 26.9 per cent investment in Petra Energy Bhd.
“Backed by RM3.4 billion order-book providing two-year earnings visibility, we believe Wah Seong is poised to turn around strongly in FY17 and register 36 per cent earnings growth in FY18.
“All in, we maintain outperform call on the stock with a higher target price of RM1.70, premising on brighter job prospect amidst stabilisation of oil prices above US$60 per barrel and stronger foothold in Europe. Such valuation is also in line with the O&G small cap valuation.”