Wah Seong’s outlook brightens on newly awarded contract

KUCHING: Wah Seong Corporation Bhd (Wah Seong) has brightened its prospects on being awarded a pipe coating contract worth US$198 million (RM611 million) and increasing enquiries on the company’s services as its nearest competitor is facing capacity constraints.

The company had announced on Bursa Malaysia that its pipe coating business unit had been awarded the contract valued by Statoil, for the total scope of coating work for the Polarled Development Project which included anti-corrosion coating, internal flow coating and concrete weight coating. The award also included coating works for the Kristin Project.

OSK Research Sdn Bhd (OSK Research) analyst Danny Chan yesterday stated, “The Polarled Development Project under Statoil involves the transportation of gas from the Aasta Hansteen Field in the Norwegian Sea to the onshore processing facility in Nyhamna, Norway. The Kristin Project links the Kristin field to the Polarled pipeline.

“We understand that the contract involves the coating of approximately 520 kilometres of pipes, which is expected to begin in 3Q13 (the third quarter of 2013) and complete in 2015.

“While the news is positive for Wah Seong, we are making no changes to our FY13 (financial year 2013) earnings as we have previously imputed contract wins for the group in 2013, coupled with the fact that earnings contribution from this contract will only be recognised in its 4Q13 earnings.

“That said, the project will likely give a significant boost to its earnings in FY14, which will be introduced once Wah Seong releases its FY12 earnings results later this month,” the analyst opined.

In an email to The Borneo Post, Chan revealed that the group’s orderbook stood at RM1 billion as at end-2012 and was looking at another RM1 billion worth of orders in FY13 as jobs in its orderbook last year would be complete by 1Q13.

Meanwhile, the analyst was brought to understand that the company’s 2013 prospects remained promising as its closest competitor, Brodero Shaw, was facing capacity constraints which raised enquiries for Wah Seong’s services this year.

Chan explained to The Borneo Post that both players had capabilities to take up bigger jobs as compared with the smaller players and if Brodero Shaw faced capacity constraints, Wah Seong would be the ultimate winner in this situation as the jobs would likely go to them since clients would need the pipes coated as soon as possible.

He added that other positive catalysts included the potential win of two contracts, namely: the second phase of works in Turkmenistan (worth US$55 million to US$60 million) and the North Malay Basin for which the value and details of the contracts were undisclosed.

“While we make no changes to our FY13 earnings estimates, we remain positive on the company’s outlook and advocate investors to stay invested in the stock.

“Key rerating catalysts for the stock from now include better-than-expected contributions from its 26.9 per cent stake in Petra Energy and better-than-expected contract flows, which could boost its earnings in FY13/14,” Chan opined.

The analyst revealed an unchanged fair value of RM2.13 per share, pegged to 14 times FY13 earnings per share, which offered an upside of well over 20 per cent (excluding prospective dividends).

At closing bell yesterday, the stock had gained seven sen to close at RM1.73 per share, an increase of 4.22 per cent.

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