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This article first appeared in The Edge Financial Daily on March 20, 2018

Wah Seong Corp Bhd
(March 19, RM1.60)
Maintain neutral with an unchanged target price (TP) of RM1.58:
The contract between Wah Seong Corp Bhd’s indirect wholly-owned subsidiary, Wasco Engineering International Ltd and Basrah Gas Company is valued at US$34.6 million (RM135.6 million). The contract is for the design, packaging and sale of gas compressor packages and associated plant and site facilities.

The contract involves the provision of gas compressors and process equipment such as tri-ethylene glycol unit, fuel gas conditioning skid, pipe racks, slug catcher, knock-out drum, vent stack, site facilities such as office and workshop containers, lighting, safety equipment, fire and gas detectors, power generators and air compressors. The engineering, detail design, procurement and packaging of the aforementioned process equipment is also included in the contract.

The project is expected to commence in March 2018 and to be completed by end-2018.

With the inclusion of this project, the group’s order book stands at RM2.94 billion (previously RM2.8 billion).

No changes made to earnings estimates as the project value is within our normal order book replenishment target for the group. Assuming a typical 10% to 12% pre-tax margin for such engineering work, this project could contribute approximately RM13 million to RM16 million to the group during the project duration.

We maintain our “neutral” call on Wah Seong with an unchanged TP of RM1.58 per share. Our TP is based on an earnings per share for financial year 2019 (FY19) of 15.8 sen pegged at an unchanged forward price-earnings ratio for FY19 of 10  times. — MIDF Research, March 19

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