Wah Seong’s earnings marred by weaker O&G segment
KUALA LUMPUR: Wah Seong Corporation Bhd (Wah Seong) saw a drop in annual profits which were mainly due to higher operating expenses and impairment losses by its joint venture company of about RM12 million in the last quarter of financial year 2018 (4QFY18).
Reporting FY18 headline profit of RM64.8 billion on the back of an RM3 billion revenue, Public Investment Bank Bhd (PublicInvest Research) said stripping-off all the exceptional items amounting to RM10.5 million, Wah Seong’s core net profit of RM75.3 million was still below forecast, meeting only 88.2 per cent of its full-year estimates.
“Our FY19-20 forecasts are maintained nonetheless with normal order of business expected to resume, underpinned by the current outstanding order book of RM1.1 billion,” it said in its report yesterday.
“All said, Wah Seong’s positives are largely priced-in, though upsides could come from securing of new – and significant – orders which could only happen in the second half (2H) of this year from its sizable tender book of RM5.9 billion.”
FY18 performance was dragged by the slower oil and gas activities in 4QFY18 particularly in the Asia Pacific region which saw revenue for the quarter drop 27.9 per cent year on year (y-o-y) to RM706.4 million.
This was further worsened by loss from associates of RM7.9 million.
Overall, Wah Seong reported weak quarterly (4QFY18) numbers with core earnings of only RM7.8 million.
“Wah Seong’s outstanding orderbook stands at RM1.1 billion inclusive of estimated RM500 million worth of new projects secured last year.
“Of the total, the balance orderbook for Nord Stream 2 project is about RM444 million which is expected to be fully completed in 3QFY19.
“The group’s tender book remains status quo as per last few quarters, standing at about RM5.9 billion mainly from oil and gas pipeline projects in Australia, Europe and Africa,” it said.
“We understand that all the projects are still valid and currently in active bidding,” it added.
“Nonetheless, award of these contracts could only happen in 2H this year.
“Hence, contribution from any new orders will only be seen in FY20 onwards.”
With no significant new contract wins recently, Kenanga Investment Bank Bhd (Kenanga Research) said Wah Seong’s order-book has dwindled down to RM1.1 billion (from RM1.6b in the previous quarter), of which Nord Stream 2 is understood to be the largest contributor.
“As such, with major new wins likely to be secured only in 2H19 or even FY20, we believe earnings have already peaked and will suffer a declining trend moving forward.
“Post-results, we lowered our FY19E earnings by 21 per cent, accounting for lower contributions from oil and gas, and renewable energy segments, while simultaneously introducing our FY20E numbers.
“Our current forecasts imply earnings decline of 21 to 18 per cent for FY19-20.”