KUCHING: Wah Seong Corporation Bhd (Wash Seong), which was awarded the coveted 600 million euros job for concrete weight pipe coating, storage and logistic by Nord Stream 2 AG (NS2 AG) for the Nord Stream 2 project, will be shielded from any potential delays.
This project, which was awarded to Wah Seong in September 2016, is worth approximately RM2.8 billion and will provide orderbook and earnings visibility for the next three years.
In an earlier report, MIDF Research pointed out that the project risk will be largely borne by NS2 AG as it will be financing the entire project.
“Wah Seong would be minimally impacted if there were any delays to this project as Wah Seong only plays the role of a technical expert and pipe coating specialist for the project, Wah Seong is not involved in the assembly and connecting of the pipelines from Russia to Europe,” the research arm reaffirmed.
“As such, in a worst case scenario, Wah Seong will be financially shielded in an event that the entire project fails.”
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), the Nord Stream 2 project might be delayed as Russia is still awaiting the collective environmental approvals from five countries (Russia, Germany, Denmark, Finland and Sweden).
“Gazprom plans to begin construction in early 2018 and has a goal of completing the pipeline by late 2019,” MIDF Research said.
“However, the planned constructions might be delayed if the approval permits are politicised amongst the countries involved which could subsequently delay the environmental permits.”
Two countries which are most likely to cause delays to the approvals are Denmark and Sweden, it said.
MIDF Research noted that Gazprom has applied for environmental and construction permits to all five countries involved; the earliest being Sweden back in September 2016. Permits to Denmark, Germany, Finland, and Russia were applied in April 2017.
“Germany has expressed that they are most likely to grant the necessary approvals for building the Nord Stream 2 gas pipeline,” it said.
As such, MIDF Research did not change its earnings forecast at this juncture pending the approval of the permits.
MIDF Research also maintained its ‘trading buy’ stance on Wah Seong with an unchanged target price of RM1.04 per share.
The research arm believed that Wah Seong offers investors the opportunity to benefit from potentially volatile share price movements premised on project activity levels.
It also noted that the company’s current orderbook stands at RM3.76 billion where 94 per cent of the jobs are from the oil and gas segment, four per cent from the renewable energy segment and one per cent from the industrial trading and services.