Thursday, August 6

Wah Seong eyes local expansion in 2013

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KUCHING: Wah Seong Corporation Bhd (Wah Seong) will focus on expanding its business locally in view of the positive outlook for the local oil and gas (O&G) sector next year, analysts said.

“The company recently acquired a stake in Petra Energy Bhd (Petra Energy) as it intends to leverage of the latter’s network to secure more local jobs,” explained OSK Research Sdn Bhd (OSK Research) in its research report.

According to the research house, the management was happy with the acquisition of the 26.9 per cent stake in Petra Energy as its strong network was believed to help Wah Seong to secure more jobs locally moving forward.

The group’s order book was noted to be worth about RM1.1 billion at this juncture. However, it was expected to dwindle over the next nine to 12 months with minimal job replenishments in the immediate term.

“We understand that management is currently bidding for a few projects, the notable ones being in Turkeminstan worth US$55 million to US$60 million, North Malay Basin for which value is yet to be finalised at this juncture and Australia which has an undisclosed value,” the report recapped.

These projects were expected to contribute positively to the group earnings for financial years 2013 to 2014 should the company succeed in its bids.

Wah Seong was also noted to have struck on a joint venture with Aegion which OSK Research believed would be led by Aegion in the logistics and marketing aspects while Wah Seong would be in charge of the technology transfer.

OSK Research took a positive stance on the joint venture as it would give Wah Seong the opportunity to penetrate into the deepwater pipe coating markets in the US, Brazil and the Gulf of Mexico.

“Nevertheless, we have not factored in the earnings contribution from this joint venture as we expect the contribution to flow in from 2013 onwards,” said OSK Research.

At present, Wah Seong’s dividend payout ratio is set at 30 per cent of net earnings but the company had been paying an average 40 per cent of total earnings.

As such, OSK Research retained its dividend forecast at 6.5 sen for financial year 2012 as management had indicated that there was unlikely to be any dividend upside this year.

It also retained its fair value of RM2.33 per share for Wah Seong based on the existing PE of 13 times financial year 2013 earnings per share, noting that the stock offered a potential upside of 33.1 per cent.